SEBI

Understanding SEBI’s Guidelines on Transfer of Portfolio Management Services (PMS) 

The Securities and Exchange Board of India (SEBI) has recently issued new guidelines to simplify the Portfolio Management Services (PMS) sector. Now, a portfolio manager can transfer his business to another manager, but only after following certain rules and with the permission of SEBI. It aims to simplify the business process and ensure investor protection.  

Under the new system, portfolio managers will be able to transfer their business easily during restructuring, merger, or acquisition. This will reduce administrative complexity, increase investor confidence, and maintain transparency in the market. Overall, this will make the PMS sector more efficient and investment friendly. 

What is Portfolio Management Services (PMS)?  

Portfolio Management Services, or PMS, is an investment service where SEBI-registered managers manage investments as per the investor’s objectives and risk profile. Generally, high-net-worth individuals, corporates, and institutions avail of this service. A separate investment strategy is developed for each client.  

Sometimes, during a business restructuring, acquisition, or merger, a PMS firm may transfer its business to another firm. In this process, the investor’s assets and contracts are securely transferred to the new manager. 

SEBI’s Approval Requirement for Transfer of PMS Business 

A portfolio manager needs to obtain SEBI permission before transferring his PMS business to someone else. Both the transferring and receiving managers must apply jointly for permission. The application must be accompanied by the business transfer agreement, board approval letter, list of clients, and necessary declarations.  

SEBI reviews these documents to ensure that both parties are acting in accordance with the rules and that the interests of investors are not harmed. This approval process ensures that clients continue to be served after the business transfer, and no legal or administrative complications arise. 

Types of PMS Business Transfer 

As per the new SEBI guidelines, portfolio managers’ (PMS) business transfer can be done in two ways. Here is a simple explanation-  

A. PMS transfer within the same group 

• If two PMS firms belong to the same group, then the business can be transferred between them. 

• The entire PMS business or certain investment approaches can be transferred. 

• If the entire business is transferred, the transferring firm will have to submit its PMS registration certificate to SEBI within 45 working days. 

• If only some investment approaches are transferred, the transferring firm can continue to operate under its previous registration. 

B. Transfer Between Unrelated PMS Firms 

PMS business can be transferred if they are not in the same group, in the case of firms.  

• Partial or selective investment approach transfer is not permitted. 

• For the transfer, both firms have to submit a joint application to SEBI. 

• This process cannot be initiated without the approval of SEBI. 

• This system ensures investor protection and continuity of responsibility. 

Regulatory Compliance and Required Documents for PMS Business Transfer  

It is mandatory to submit certain documents and approvals before the PMS business transfer. The process is as follows- 

• Joint Application: Both the transferring and receiving entities have to apply to SEBI jointly. 

• Business Transfer Agreement: It should clearly state the rights, obligations, and terms and conditions of both parties. 

• Client Disclosure and Consent: All clients should be informed about the transfer, and their consent should be obtained, if necessary. 

• Board Approval: Formal approval of the board of directors of the company is required. 

• Client List and Assets Under Management (AUM): Information should be submitted at the time of transfer. 

• FIT and Proper Declaration: Both entities must declare their fitness as per SEBI (Intermediaries) Regulations. 

Due care should be taken while maintaining and submitting the documents. Timely submission of undertakings in formats like Annexure-I and Annexure-II speeds up the approval process. 

Responsibilities of Transferring and Receiving PMS 

Both parties have certain responsibilities during the transfer of Portfolio Management Services (PMS), which are clearly defined in the SEBI guidelines.  

Transferring PMS: 

• Once the transfer process is initiated, new client acceptance should be stopped. 

• After the complete transfer of business, a registration certificate should be submitted to SEBI. 

• All regulatory responsibilities and compliance responsibilities will remain with them until the transfer is completed. 

Receiving PMS: 

• After the transfer, all previous liabilities, litigations, and obligations should be assumed. 

• Clients’ portfolios should be managed without any disruption. 

• Regulatory readiness and competency should be ensured before taking over the business. 

• This structured process protects the interests of clients and helps in maintaining investment continuity. 

Timeframe and Implementation Process 

As per the SEBI deadline, the entire transfer process has to be completed within a maximum of two months from the date of approval. During this period, the transferring firm will be able to serve its existing clients but will not be able to take on new clients. Once the transfer is complete, or on completion of two months (whichever is earlier), the transferring firm will have to submit its certificate of registration to SEBI. 

This fixed time frame makes the entire process fast and transparent. It demonstrates that SEBI is committed to reducing administrative complexity and ensuring business continuity. 

Impact on Investors and the PMS Sector 

This new rule has brought about a positive change for the PMS sector and investors.  

Firstly, it ensures continuity in portfolio management for investors, thus eliminating the risk of service disruption.  

Secondly, it brings transparency to the merger and acquisition process of PMS firms. It encourages mergers among large and efficient PMS firms, which improves the overall quality of service. 

Thirdly, investors can now invest with more confidence, as SEBI has clearly laid down liability and transfer policies. This is a significant step towards SEBI’s larger objective of making financial markets modern, transparent, and investment friendly. 

To Wrap Up 

SEBI’s guidelines on PMS business transfer are a major step towards regulatory transparency and ease of doing business. It helps PMS companies restructure their businesses with greater flexibility while also providing a robust framework to protect the interests of investors. This streamlined process reduces the complexity of the transfer and enhances confidence in the financial sector. 

If your company is looking for advice on PMS business transfer, merger, or SEBI approval, Enterslice is ready to provide you with complete support. Our expert team will help you complete your process in a simple, fast, and fully compliant manner. Contact us today.

Common Questions About SEBI’s PMS Transfer Guidelines