diff --git a/rasa_sdk/__main__.py b/rasa_sdk/__main__.py
index 7433b9e5..dc337130 100644
--- a/rasa_sdk/__main__.py
+++ b/rasa_sdk/__main__.py
@@ -29,7 +29,7 @@ def main_from_args(args):
                 args.port,
                 args.ssl_certificate,
                 args.ssl_keyfile,
-                args.ssl_password,
+                args.ssl_ca_cert_file,
                 args.endpoints,
             )
         )
@@ -47,7 +47,7 @@ def main_from_args(args):
 
 
 def main():
-    # Running as standalone python application
+    """Runs the action server as standalone application."""
     arg_parser = create_argument_parser()
     cmdline_args = arg_parser.parse_args()
 
diff --git a/rasa_sdk/cli/arguments.py b/rasa_sdk/cli/arguments.py
index 5a805ef8..f595ac22 100644
--- a/rasa_sdk/cli/arguments.py
+++ b/rasa_sdk/cli/arguments.py
@@ -3,17 +3,31 @@
 from rasa_sdk.constants import DEFAULT_SERVER_PORT, DEFAULT_ENDPOINTS_PATH
 
 
-def action_arg(action):
-    if "/" in action:
+def action_arg(actions_module_path: str) -> str:
+    """Validate the action module path.
+
+    Valid action module path is python module, so it should not contain a slash.
+
+    Args:
+        actions_module_path: Path to the actions python module.
+
+    Returns:
+        actions_module_path: If provided module path is valid.
+
+    Raises:
+        argparse.ArgumentTypeError: If the module path is invalid.
+    """
+    if "/" in actions_module_path:
         raise argparse.ArgumentTypeError(
             "Invalid actions format. Actions file should be a python module "
             "and passed with module notation (e.g. directory.actions)."
         )
     else:
-        return action
+        return actions_module_path
 
 
-def add_endpoint_arguments(parser):
+def add_endpoint_arguments(parser: argparse.ArgumentParser) -> None:
+    """Add all the arguments to the argument parser."""
     parser.add_argument(
         "-p",
         "--port",
@@ -47,7 +61,15 @@ def add_endpoint_arguments(parser):
         "--ssl-password",
         default=None,
         help="If your ssl-keyfile is protected by a password, you can specify it "
-        "using this paramer.",
+        "using this parameter. "
+        "Not supported in grpc mode.",
+    )
+    parser.add_argument(
+        "--ssl-ca-cert-file",
+        default=None,
+        help="If you want to authenticate the client using a certificate, you can "
+        "specify the CA certificate of the client using this parameter. "
+        "Supported only in grpc mode.",
     )
     parser.add_argument(
         "--auto-reload",
diff --git a/rasa_sdk/grpc_server.py b/rasa_sdk/grpc_server.py
index 1b4f98d1..8f7115c5 100644
--- a/rasa_sdk/grpc_server.py
+++ b/rasa_sdk/grpc_server.py
@@ -3,7 +3,6 @@
 import signal
 
 import asyncio
-import ssl
 
 import grpc
 import logging
@@ -147,7 +146,7 @@ async def run_grpc(
     port: int = DEFAULT_SERVER_PORT,
     ssl_certificate: Optional[str] = None,
     ssl_keyfile: Optional[str] = None,
-    ssl_password: Optional[str] = None,
+    ssl_ca_cert_file: Optional[str] = None,
     endpoints: str = DEFAULT_ENDPOINTS_PATH,
 ):
     """Start a gRPC server to handle incoming action requests.
@@ -157,7 +156,7 @@ async def run_grpc(
         port: Port to start the server on.
         ssl_certificate: File path to the SSL certificate.
         ssl_keyfile: File path to the SSL key file.
-        ssl_password: Password for the SSL key file.
+        ssl_ca_cert_file: File path to the SSL CA certificate file.
         endpoints: Path to the endpoints file.
     """
     workers = number_of_sanic_workers()
@@ -170,14 +169,11 @@ async def run_grpc(
     action_webhook_pb2_grpc.add_ActionServerWebhookServicer_to_server(
         GRPCActionServerWebhook(executor, tracer_provider), server
     )
+
+    ca_cert = open(ssl_ca_cert_file, 'rb').read() if ssl_ca_cert_file else None
+
     if ssl_certificate and ssl_keyfile:
         # Use SSL/TLS if certificate and key are provided
-        ssl_context = ssl.SSLContext(ssl.PROTOCOL_TLS_SERVER)
-        ssl_context.load_cert_chain(
-            ssl_certificate,
-            keyfile=ssl_keyfile,
-            password=ssl_password if ssl_password else None,
-        )
         grpc.ssl_channel_credentials()
         private_key = open(ssl_keyfile, "rb").read()
         certificate_chain = open(ssl_certificate, "rb").read()
@@ -187,6 +183,8 @@ async def run_grpc(
             server_credentials=grpc.ssl_server_credentials(
                 [(private_key, certificate_chain)]
             ),
+            root_certificates=ca_cert,
+            require_client_auth=True if ca_cert else False,
         )
     else:
         logger.info(f"Starting gRPC server without SSL on port {port}")