SEBI Issues Investment Advisers Regulations, 2013
These regulations have come after SEBI released a concept paper in 2011 where the regulator intended to address the issue of conflict of interest in the financial markets arising between the manufacturers of financial products on one hand and on the other hand, the distributors, agents, financial advisers, etc., who sell these products to the investors. This came in the wake of the Regulator's taking note of the key role played by these advisers/intermediaries because not only are the intangible financial products conceptually difficult to understand, but the financial literacy in the country is also low.
In an effort to resolve this issue, or to alleviate it to a considerable extent, the new SEBI (Investment Advisers) Regulations, 2013 call for the following:
- 1. Mandatory registration of Investment Advisers:
- As per the regulations, no person shall act as an investment adviser unless he has obtained a certificate of registration from SEBI under these regulations. A person already acting as an investment adviser before the commencement of these regulations can do so only for a period of 6 months without making an application for the same.
- The Board has specified a list of entities which shall lie outside the ambit of these Regulations like persons giving general comments in good faith, insurance agents offering advice solely in insurance products and registered with IRDA, brokers, sub-brokers, mutual fund distributors, advocates, CA, CS, CMA, providing investment advice to their clients, incidental to their practice, etc.
- 2. Qualification and Certifications required to act as an Investment Adviser:
- Any individual registered as an investment adviser or partners and representatives of an investment adviser registered under these regulations offering investment advice shall have the following at all times:
- Minimum Qualifications:
- A professional qualification/ a post graduate degree/ a post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognized by the Central/ State Government or from a recognized foreign university/ institution or association.
- A certification from NISM or from any other organization or institution including Financial Planning Standards Board India or any recognized stock exchange in India provided that such certification is accredited by NISM.
- Any existing investment advisers seeking registration under these regulations shall ensure that their partners and representatives obtain such certification within 2 years from the commencement of these regulations.
- 3. Capital Adequacy norms:
- As per the regulations, the Net worth will be equal to the (Aggregate of paid up share capital & free reserves) reduced by (Aggregate of accumulate losses, deferred expenditure & miscellaneous expenditures not written off, capital adequacy requirement for any other services offered by the adviser in accordance with the applicable rules and regulations).
- Existing investment advisers shall comply with the capital adequacy requirement within one year from the date of commencement of these regulations.
- 4. Eligibility Criteria:
- The Regulations provide some eligibility requirements which an entity interested in obtaining the registration is required to take into account for the grant of the certificate of registration. The criteria prescribed under the Regulations are as following:
- Whether the applicant is an individual or a body corporate or a firm.
- Whether the individual/ the partners/ the representatives of the entity as the case may be, have the prescribed qualifications and certification.
- Whether the applicant fulfills the Capital adequacy requirements.
- Whether the applicant if an individual or its representatives and partners in any other case, fulfill the criteria for fit and proper persons as specified in the SEBI (Intermediaries) Regulations, 2008.
- Whether the applicant has the necessary infrastructure to effectively discharge the activities of an investment adviser.
- Whether applicant or any person directly/ indirectly connected with the applicant has been refused a certificate in the past by the Board and the grounds for such refusal.
- Whether any disciplinary action has been taken by the Board or any other Regulatory Authority against the applicant or any person directly/ indirectly related to it.
- Whether the registration is permitted by RBI and the application has been made through a subsidiary or a separately identifiable branch in case the applicant is a NBFC or a bank.
- Whether the application is made through a separately identifiable department or division in case the applicant is a body corporate other than a bank or NBFC.
- Whether an applicant which is an entity incorporated outside India has set up a subsidiary in India and whether the application has been moved by such subsidiary.
- Whether the applicant being a foreign citizen has set up an office in India and whether the activities of an investment adviser have been proposed to be carried out from such office.
- 5. Naming requirements after successful registration:
- The Board through the Regulations has mandated the use of the words "investment adviser" in the name in the following manner:
- Individual: An Individual Investment Adviser shall use the term 'investment adviser' in all his correspondence with the client.
- Investment Adviser other than Individual: An Investment Adviser not being an individual shall include the words "investment adviser" in its name and in case the service is being provided through a separately identifiable department/ division/ subsidiary, then such separately identifiable body should include the words "investment adviser" in its name.
- 6. The Board's special power:
- The Board reserves the right to recognize any body or body corporate for the purpose of regulating investment advisers and delegate administration and supervision of these intermediaries on terms & conditions as it may deem fit. The Board may even specify a body or body corporate whose membership may be mandatory for any person wishing to act as an investment adviser.
- The Board shall have the authority to alter, modify or overrule any decision or action taken or penalty imposed by such recognized bodies or bodies corporate.
- 7. General Obligations and responsibilities:
- Through these Regulations the Board has also specified some general obligations which a registered Investment Adviser will have to take care of, like the fiduciary & other general responsibilities towards the clients, proper risk profiling of the investor before advising on various financial products, various steps to be taken care of before evaluating the suitability of the product for the investor, disclosures to be made to the investor, maintenance of records, appointment of compliance officer, redressal of client grievances, etc.
- 8. Inspection of Investment Advisers and Defaults:
- The Regulations provide that the Board may on its own accord or on receipt of information or complaint, appoint one or more persons as inspecting authority to undertake inspection of books of accounts, records, documents relating to investment advice and for this the Board shall issue a notice of not less than 10 days to the Investment Adviser. However, if the Board thinks that not giving a notice shall be in the interest of investors, then the Board shall go ahead without doing so. The Investment Adviser shall be required to fully assist the inspector during inspection.
- On the basis of inspector's report, the Board may take the necessary steps after giving reasonable opportunity of being heard to the Investment adviser.
- 9. Default and Penalty:
- In case of any defaults on the part of the Investment Adviser under the said regulations or under the SEBI Act and other related regulations & circulars, the matter shall be dealt in accordance with the SEBI (Intermediaries) Regulations, 2008.
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