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Sebi notifies amendments to investment adviser norms

The fee charged by the IA for providing investment advice will be as specified by the regulator.

Sebi notifies amendments to investment adviser norms

Eligibility criteria for IA have also been amended. (Photo: IANS)

Regulator Sebi on Friday notified amendments to investment adviser norms which would be effective after three months and segregate their advisory and product distribution activities, among other amendments.

The move is aimed at strengthening the regulatory framework for investment advisers, Sebi noted in a release notifying amendments to Sebi (Investment Advisers) Regulations, 2013.

“These amendments shall come into force on the ninetieth day from the date of their publication in the Official Gazette,” Sebi said.

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Noting the key regulatory changes, Sebi said the investment advisors (IA) will need to segregate advisory and distribution activities at client level to avoid conflict of interest.

Besides, a non-individual investment adviser shall have client level segregation at group level for investment advisory and distribution services and “maintain an arm’s length relationship between its activities by providing advisory services through a separately identifiable department or division,” the markets watchdog said.

The amended provisions have also enhanced net worth requirement for registration as IA for non-individuals to Rs 50 lakh and Rs 5 lakh for individuals, among other amendments.

At present, individuals are required to have a networth of Rs 1 lakh, while the same for body corporate or non individuals are at least Rs 25 lakh.

For ensuring greater transparency with reference to advisory activities, the amendments call for mandatory agreement to be entered between IA and the client.

An individual will have the option to register as an IA or provide distribution services as a distributor.

IA are allowed to provide implementation services (execution) through direct schemes or products in the securities market. However, no consideration can be received directly or indirectly, at investment adviser’s group or family level for these services, the regulator said.

The fee charged by the IA for providing investment advice will be as specified by the regulator.

Eligibility criteria for IA have also been amended. Individual IA or a principal officer of a non-individual IA needs to have enhanced professional or post-graduate qualification in relevant subjects and 5 years of relevant experience.

However, existing individual IA have been grandfathered from complying with the enhanced qualification and experience requirement.

Individuals registered as IA whose number of clients exceed 150, will have to apply for registration with Sebi as non-individual IA.

In January, Sebi had floated a consultation paper on review of regulatory framework for investment advisers and sought comments from the public on the proposals. After considering the public comments, Sebi Board had approved the proposals on regulatory changes including amendments to Sebi(Investment Advisers) Regulations, 2013.

“To give effect to these proposals the Securities and Exchange Board of India (Investment Advisers) (Amendment) Regulations, 2020 have been notified,” Sebi said.

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