Investment advisers will need to have a good credit report card and satisfactory research capacity to get permission to provide advise to investors in stocks and other capital market segments.
Market regulator Sebi (Securities and Exchange Board of India) recently decided to frame exclusive regulations for Investment Advisers, after consulting other regulators like RBI, IRDA and PFRDA, as also the comments received from the public on a concept paper disseminated for this purpose.
After deliberations over the proposed rules at the Sebi board, it was felt that the regulations need to robust enough to safeguard the interest of investors in the capital markets, a senior official said.
Accordingly, a number of changes were suggested by the board to the draft regulations proposed by Sebi, including the requirement of a credit report or score from CIBIL, and details of the research facility to be submitted by the entities seeking to become investment advisers, he added.
While the draft regulations were presented before Sebi board in August, the final regulations would be notified soon after incorporating the proposed changes.
Also, the new regulations, which make it mandatory for investment advisers to get registered with Sebi subject to certain exceptions, would now come into force three months after their notification.
Sebi had previously proposed the regulations to become effective from the date of their notification.
Among the proposed changes, the investment advisers in their applications would be required to submit a credit report / score from the Credit Information Bureau (India) Ltd, instead of references from two bankers needed in the original draft regulations.
CIBIL is a national agency that collects and maintains records of an individual's payments pertaining to loans and credit cards.
This information is used to create Credit Information Reports (CIR) and credit scores which are provided to lenders and other entities to help them evaluate the credit profile of the person.
Also, the draft regulations required the entities seeking to get registered as investment advisers to submit details of their data processing capacity. Instead, they would now be required to submit details of their in-house and other research capabilities, the official said.
The other changes to the draft regulations include the provision for appointing or authorising an Ombudsman to resolve any dispute between the investment advisers and his/her clients, in addition to a dispute resolution mechanism through arbitration.
Besides, the draft regulations provided for Sebi being authorised to appoint an SRO (Self Regulatory Organisation) for the purpose of regulating Investment Advisers at a later stage.
However, this has now been proposed to be replaced by a provision, under which Sebi for the purpose of regulating investment advisers may recognise a "body constituted under appropriate laws/regulations", whose membership will be necessary for being allowed to act as an investment adviser.
Changes have also been proposed to make it clear in the regulations that the education and certification requirements for the investment advisers are continual in nature.
As per the proposed regulations, the investment advisers would not be allowed to take any remuneration or compensation from any person other than from the client being advised.
For a bank or body corporate having a distribution, referral or execution business, it would be necessary to keep the investment advisory services segregated from such activities and to make disclosures to the clients being advised about any remuneration or compensation received by it and any of its associates for the distribution, referral or execution services.