Sebi mulls overhaul of investment advisor and research analyst rules

Slew of relaxation to bring more under the formal fold

The Securities and Exchange Board of India (Sebi) has proposed an overhaul of regulations governing investment advisors (IAs) and research analysts (RAs) in a bid to enable more participation.

Some of the proposals are aimed at weeding out misinformation by financial influencers and encouraging greater onboarding of IAs through the formal channel.

Sebi has proposed relief in eligibility requirements such as renewal of base certification, educational qualifications, minimum net worth, minimum experience, allowing registrations as both IA and RA, and facilitating registration of part-time IAs.

Along with relaxation measures, Sebi has also attempted to fill the gaps and arbitrage in the current norms. For instance, Sebi has proposed to introduce regulations on ‘model portfolios’ which set out recommendations for multiple securities based on certain parameters. The norms will include disclosures, true-to-label nomenclature, benchmarking, and performance validation, among others.

 

Additionally, the proposed regulations also address the use of Artificial Intelligence (AI) by IAs by mandating disclosure on the extent of use of such tools for clients.

The market regulator has proposed substituting the mandate of securing base certifications every three years to only obtaining them at the time of registration.

These base certifications include NISM-Series-XA and XB for IAs and NISM-Series-XV for RAs.

“They shall be required to obtain a certification that shall be based only on the incremental changes or developments during the previous three years or a period of time as may be specified, in the regulatory and professional space concerning IAs and RAs,” said Sebi in a consultation paper floated on Tuesday.

Such certification on the incremental changes or developments shall be required to be obtained by IAs and RAs before the expiry of the previous certification.

As per the proposals, individual IAs will be required to apply for registration as a non-individual IA if they cross 300 clients or if the fee collection in the financial year breaches Rs 3 crore.

Further, the market watchdog is also mulling over flexibility on the fee collected by advisors but may introduce caps for the maximum fee charged by RAs.

Sebi said that RAs may charge a maximum of Rs 1.25 lakh per annum per family in the case of individual clients. However, it will not be applicable in the case of institutional investors, qualified institutional buyers (QIBs), or accredited investors. RAs may also charge fees in advance, up to one month, if the client agrees.

Registered investment advisors and RAs had sought relief from the regulator, citing compliance burden and onerous requirements making it challenging to continue the practice.

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