Sebi Registration Compulsory for all Investment Advisors in India

Ozg Registration, Approval & Licensing

India’s capital market regulator on Jan 22 2013 issued the final regulations for investment advisers in India.

The Securities and Exchange Board of India, or Sebi, said in a note that all entities engaged in advising on financial products will be required to get registered with it and segregate all such services from other activities such as distribution.

An investment adviser is defined as an entity engaged in the business of providing investment advice for a consideration.

Insurance agents, mutual fund distributors, advocates, chartered accountants, stock brokers, fund managers, people giving general comments in good faith on trends in the financial market, members of a self-regulatory organization and those offering investment advice exclusively to overseas clients are exempted from the registration process.

Sebi’s move assumes significance in the backdrop of instances of fraud committed by several entities in the guise of investment advisory and the perpetual debate among the country’s financial regulators over the jurisdiction of advisers as the services provided by them straddle a wide range of products.

Under the new norms, all investment advisers will be regulated by Sebi, to begin with. The existing entities offering advisory services will be given six months to register themselves with Sebi.

The capital market regulator said that it may authorize a separate body later to regulate investment advisers.

Sebi had earlier said that investment advisers could be regulated by a self-regulatory organization, or SRO.

All advisers will need certain professional qualifications and experience in the financial services space to get registered with Sebi. A corporate body, seeking registration, has to have a net worth of at least Rs.25 lakh and an individual or partnership firm should have assets of at least Rs.1 lakh.

Existing investment advisers will have to comply with the capital adequacy norms within one year and have to categorically mention the term “investment adviser” wherever they engage in investment advisory services.

In order to enhance the quality of services offered by investment advisers and transparency with the client, Sebi said such advisers will act in a fiduciary capacity and disclose all conflicts of interests involved in their services.

The adviser has to also disclose the details of disciplinary actions taken against them by any authority in the past and its association with other intermediaries, apart from remuneration in any form from associates or subsidiaries.

The regulations were much discussed and debated before being finalized by Sebi on Tuesday.

In March 2007, the regulator had first issued a consultative paper on the issue.

Later, in December 2008, the high-level coordination committee, or HLCC, on financial markets set up the D. Swarup committee to re-examine the issue.

The committee submitted its report in December 2009 and it was discussed by HLCC in March 2010.

Following this, regulatory issues related to wealth management and private banking undertaken by banks were debated by the financial stability and development council in March 2011. Subsequently, Sebi issued a concept paper on the regulations in October 2011. Finally, in August 2012, after a board meeting, Sebi issued draft regulations.

Under the final norms, investment advisers that are banks, non-banking finance companies, or NBFCs, and corporations offering distribution services will have to keep their investment advisory services segregated from such activities.

If these entities wish to offer investment advisory, the fees charged towards distribution services by them have to go directly to the service providers and not through the investment adviser.

To curb the risks related to advisory services, Sebi said the investment adviser cannot enter into transactions on its own account contrary to the advice given to clients for at least 15 days from the day of such advice.

Also, the adviser will be required to ensure that the investment advice suits the client’s risk appetite, age, objectives, income, assets and so on.

An adviser found to be breaching the norms could be barred from advisory services or accessing the capital market and be required to refund the money collected as fees or commission along with interest, said Sebi.

Jan 22 2013 / Live Mint

Ozg Registration, Approval & Licensing