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Analysis of Amendment in SEBI Guidelines for Investment Advisers

Navdisha Sehgal

| Updated: May 08, 2021 | Category: SEBI

Analysis of Amendment in SEBI Guidelines for Investment Advisers

SEBI has issued a Consultation Paper on 16th January, 2020 seeking for public comments on the proposed changes in the SEBI guidelines for Investment Advisers. SEBI approved the changes in the Board Meeting held in February, 2020.

SEBI on 3rd July, 2020 in its notification amends the SEBI (Investment Adviser) Regulations, 2013 to strengthen the regulatory framework for investment advisers. The amendments made will be effective from 90th day from the date of its Publication in the official gazette.

The article analyses the amendments made by SEBI for investment advisers.

Amendments in SEBI Guidelines for Investment Advisers

SEBI in January 2020 issued a consultation paper to review the regulatory framework for Investment Advisers. The paper proposes segregation between advisory, distribution & execution given to a client by the investment advisers.

SEBI has approved all the changes made after the consultation paper was presented & notified the same as SEBI (Investment Advisers) (Amendment) Regulations, 2020[1] or (Amendment Regulations, 2020). These regulations came into force on the 90th day from the date of publication in the official gazette.

The Amendments are:

ProvisionsObjective of provisions
Regulation 2(1) (aa)Definition of asset under adviceThe definition has been added so that the fees based on AUA & to shift the individuals to non – individuals based on certain amount.
Regulation 2 (1) (ga)Definition of CPETo discontinue the practice to obtain fresh certificate through the CPE program.
Regulation 2 (1) (gb)Definition of family clientThe definition was added to make sure the compliance of the client level segregation of advisory & the distribution activities.
Regulation 2 (1) (gc)Definition of family of an individual IAThe definition was added to make sure the compliance of the client level segregation of advisory & the distribution activities.
Regulation 2 (1) (pa)Definition of non – individualIt has been added to differentiate between non – individuals & individuals.
Regulation 2 (1) (r)Definition of persons associated with IAThis definition has replaced the definition of representative & will cover every employees those who are in interaction with the clients.
Regulation 2 (1) (s)Definition of principal officerIn the present regulation, the terms persons associated with investment advice & principal officer and it has been clearly defined.
Regulation 3 (1) (A)Any pending application under SEBI in this respect will be dealt as per the new regulations.
Regulation 3 (3)The said sub-regulation is inserted to discontinue the use of nomenclature of IFA Adviser by the not registered persons with SEBI.
Regulation 6 (a) There were 3 terms in the previous regulation i.e., individual, firm & body corporate; but now there are only 2 terms, i.e., individuals & non- individuals.
Regulation 6 (b)In case of individuals, the investment advisers & the persons associated with the IA must be qualified as per the new regulation.
Regulation 6 (c)In case of body corporate, the principal officer& the persons associated with the IA must be qualified as per the new regulation.
Regulation 6 (d)In case of LLP, the principal officer & the persons associated with the IA must be qualified as per the new regulation.
Regulation 7Qualification & certification requirementThe qualification criteria is changed in the new regulation as for individual adviser, principal officer of a non-individual adviser must have: Professional qualification or PG degree5 years’ experience in the securities market. For the persons associated with IA must have: Professional qualification or PG degree2 years’ experience in the securities market. Furthermore, the existing IA has given time period of 3 years from the date of commencement of the new regulations to comply with these provisions. All the above – mentioned persons must have certification from NISM (National Institute of Securities Market) or any other institution or organization accredited by NISM. Further, attaining a fresh certificate via CPE Program has been discontinued.
Regulation 8Net worthThe net worth requirements for: Non-individuals has been increased to Rs. 20 lakhs;Individuals it has increased to Rs. 5 lakhs.
Regulation 13 (e)When the no. of individual IA exceeds 150, they have to apply for registration as non – individual advisers.
Regulation 15AFeesThe fees to be charged from the client is set by SEBI.
Regulation 18Disclosure to the clientThe disclosure related to the compensation or remuneration obtained from its subsidiary or the associates for distribution.
Regulation 19 (d)To ensure transparency and it is mandatory for IA to enter into an agreement.
Regulation 19 (3)The report post completion of the compliance audit has to submit to SEBI.
Regulation 22Client level segregation od advisory & distribution activitiesA single person cannot provide for both services. The distribution & the advisory are thus segregated. The compliance & the monitoring process concerning the client segregation will be specified by the Board.
Regulation 22AImplementation of advice or executionThe investment advisers can provide the implementation to its advisory clients through direct schemes only, but the consideration by the IA has not be received either directly or indirectly.

Conclusion

SEBI is a regulatory body trusted with the duty to promote & protect the interests of the investor for the security market in India. SEBI recently rolled out the SEBI (Investment Adviser) Regulations amendment & the amendment was made after the presentation of consultation paper by SEBI in year 2016, 2017, 2018 & 2020 to promote & enhance the effective regulation of investment adviser.

Thus, there is a need to regulate the framework monitoring the advisory industry to ensure transparency & honesty of the IA’s advice given. However, there are few loopholes in the regulations that needed to be re-analyzed.

Read our article: All about SEBI reviews Norms of Investment

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Navdisha Sehgal

Completed BA LLB from JEMTEC, School of Law, Greater Noida (Affiliated to GGSIP University, New Delhi). I have an experience of about 2 years in various fields of corporate laws, but I have a keen interest in researching on legal issues and to gain knowledge. I always strive to bring the best to work on what I do.

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