 "Sebi for tighter investment advisor oversight")
It has proposed measures to monitor investment advice given by automated tools or algorithms, known as robo advisors as they don’t involve human intervention. Sebi has said such automated tools should be ‘fit for the purpose’ and in the best interest of suitable clients.
The IA using the tool shall be responsible for the advice. The automated tools used by advisers shall also be subject to audit and inspection, Sebi said in a consultation paper it issued on Friday.
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The regulator has proposed curbs on the practice of providing trading tips via SMS, WhatsApp, Twitter, Facebook or any other social media platform. It recommends no person be allowed to provide trading tips or stock-specific recommendations to the general public through any social networking medium, unless registered as an investment adviser. The provisions in this regard will be soon added to the Prohibition of Fraudulent and Unfair Trade Practices regulations, it said. Also proposed to be banned are free trail trading tips, offered to attract new clients. “To curb the practice, it is proposed that an IA not be allowed to provide free trial of trading tips to prospective clients,” Sebi said in the discussion paper.
It had also observed, it said, that many entities have started offering various schemes in the form of competitions, games and leagues. Such schemes are generally based on predicting the price movement of securities and are neither approved nor endorsed by the markets regulator. It has clarified that there is no recourse available to investors from Sebi with regard to any loss incurred due to this. And, has proposed that such offers also be banned.
In the wake of mis-selling of investment products, Sebi has also proposed to define the term to include all financial instruments that are regulated by any financial sector regulator. However, advice exclusively on products in non-securities markets which are monitored by sectoral regulators shall be outside the scope of the IA regulations, it said.
It is also proposed to clarify that persons providing investment advice in any broadcast or print medium which is available to the public in general shall have to comply with provisions pertaining to recommendations in the public media as specified in Sebi’s (Research Analysts) Regulations, 2014.
Also, it is proposed that mutual fund distributors not be allowed to provide incidental or basic investment advice in respect of MF products. If they wish to, they need to register themselves as an investment adviser under the Sebi rules. Beside, MF distributors who want to shift from a commission- based model to a fee-based one shall be also required to register as an IA. Sebi also proposed that no person be allowed to use the name 'independent financial adviser’ or ‘wealth adviser’ unless he obtains a registration from Sebi as an IA.
It has also proposed measures in terms of registration of research analyst, advertisement code, display of details on website and recognition of chartered accountant analysts.