The move comes soon after US Securities and Exchange Commission (SEC) penalized Indian brokers with Rs 10 crore for soliciting business from American clients without registration.
The proposal for the new rules was discussed in Sebi's previous board meeting on March 8. A senior consultant at a law firm welcomed the move saying that there have been several instances when foreign entities and wealth managers discreetly distribute foreign financial products within India.
Experts said that the move will not only strengthen rules but also bring down cases of mis-selling of foreign structured products.
Banks currently need the permission of RBI for marketing any scheme for soliciting foreign currency deposits or for acting as agents of foreign mutual funds or any other financial services company.