Reporting Requirements of Portfolio Managers

Ankita Tiwari

29 Apr, 2023

The Securities Exchange Board of India (SEBI) introduced the master circular no. SEBI/HO/IMD/IMD-POD-1/P/CIR/2023/38 for the portfolio managers on 20^th March 2023. The circular came into force from the date of issue. The master circular aims to effectively regulate Portfolio Managers. It prescribes certain reporting requirements that the portfolio managers have to follow. Their reporting is done under three heads. Let’s discuss the reporting requirements in detail to get a brief idea of the reporting requirements of the Portfolio Managers:

Monthly Report

Every Registered Portfolio Manager (RPM) is required to submit a monthly report giving details about all the portfolio management activity. SEBI also prescribes a format under Annexure 5A accordingly the reports should be filed. There is no requirement to send the hard copy of the report to SEBI. A scanned copy of the report should be uploaded by the RPM within 7 (seven) days from the end of the month. Data relating to Assets under Management (AUM) of the portfolio manager on the last day of the calendar year should be indicated in Rupees. A compliance officer appointed in terms of the SEBI (Portfolio Managers) Regulation, 2020 shall be responsible to ensure compliance with the circular. A detailed process has been prescribed for uploading monthly reports on the portal. The process is as follows:

1. First, the Portfolio Manager has to log on to the SEBI Portal^[1] by entering the username and password.
2. Selection of portfolio manager tab.
3. Selection of the link to the Portfolio Manager monthly report.
4. Filling the data as per the format provided.
5. Save data and then submit.

Compliance Report

By way of circular no. SEBI/HO/IMD/DF1/CIR/P/2020/26 dated 13^th February 2020 SEBI has mandated the submission of certain documents. The circular became effective from the financial year 2019-20 and requires the submission of the following documents:

1. Duly approved certificates such as:

• A certificate issued by a Chartered Accountant stating the net worth at the end of every financial year i.e. as on March 31 based on the account audited within 6 (six) months from the end of the financial year.
• A certificate of compliance with the SEBI (Portfolio Manager) Regulations, 2020, and circulars issued thereby. The certificate should be duly signed by the Principal Officer that too within 60 (sixty) days from the end of a financial year. In case of failure to comply with any regulations, the report must provide details of the non-compliance along with the corrective actions taken after obtaining due approval from the Board of Portfolio Managers.

2. Corporate Governance Report

• Review of the compliance of regulation should be done by Boards of Portfolio Managers in their periodical meetings. A system should be developed where all quarterly reports of compliance with the regulations and guidelines, along with the due diligence exercised by their officials, are available to protect the interest of the investor. These reports are to be placed before the Boards of Portfolio Managers by the compliance officers, who then review the redressal of investors’ grievances. If any deficiency letter or warning letter has been issued by the Portfolio managers, the same should also be placed before the Boards of Portfolio Managers.
• An Internal Audit should be conducted by a Chartered Accountant or a Company Secretary, which helps in determining the quality of internal procedures followed by the Portfolio Managers. The Internal Audit Report should also be placed before the Boards of Portfolio Manager.
• Due Diligence is carried out by portfolio managers in the exercise of their operational activities.
• A compliance Report prepared by portfolio managers regarding compliance with the provisions of this guideline is required to be submitted to SEBI at the same time when the annual reports are submitted but before the expiry of thirty days from the end of the financial year.

3. Firm-level performance reporting

Firm-level auditing and performance reporting is to be done annually and should be reported within 60 (sixty) days from the end of a financial year. This report should be certified by the Directors/Partners of the Portfolio Manager or by any person(s) authorized by the Board of Directors/partners of the Portfolio Manager.

4. Offsite Inspection and Data Reporting

To do offsite inspection and surveillance of Portfolio Managers and to monitor the compliance level, SEBI framed data structure and all Portfolio managers are required to furnish data to SEBI under the heads prescribed. This report has to be filed within 10 (ten) days from the end of the quarter. Day-wise data is required to be furnished under the following headings: “Client Folio AUM”, “PM Pool Demat Account Holding” and “Client Holding Master”. In case of first-time reporting, the data of all their clients from 1^st April 2020 to 30^th September 2020 shall be submitted by the Portfolio Managers. The data that is required to be submitted by the Portfolio Manager as per the reporting formats is given under Annexure 5B and the details of the requirements under different clauses of the Master Circular are done as per the reporting format prescribed under Annexure 5C.

Client Reporting

A report prepared as per the format prescribed under Annexure 5D of the Master Circular shall be furnished to the clients quarterly. This report shall include the following:

• Investment details of client’s funds in securities of associates or related parties of the Portfolio Manager;
• Details regarding passive breach of investment limits and corrective steps taken.
• Credit ratings of investments in debt and hybrid securities

Failure to submit the report

If any portfolio manager fails to submit the report within the due date as provided under the circular or refuses to file the report, then it shall constitute a default. The Portfolio Manager shall be liable for such action under SEBI (Intermediaries) Regulation, 2008.

Conclusion

At last, it can be said that the SEBI Portfolio managers have to submit a monthly report to the Association of Portfolio Managers in India, who in turn makes these reports available on the website in a simple manner. This is done to facilitate ease of comparison and to provide access to the portfolio level, investment approach level and portfolio manager level and industry level information to all stakeholders. It is the responsibility of the Association of Portfolio Managers to make available the relative performance of all investment approaches and to disclose the same on the website. This move of SEBI is highly appreciated as it creates distinct categories for reporting and ensures transparency. It makes sure that the true performance of the strategy is reflected in the report.

Read our Article: SEBI issues Circular on Portfolio Managers Compliance