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
