Ease of doing business: SEBI proposes easier compliance norms for RAs, IAs

.

The Securities and Exchange Board of India (SEBI) has suggested a slew of proposals to enhance the ease of doing business quotient for Investment Advisers (IAs) and Research Analysts (RAs).

In a consultation paper released on Thursday, the capital market regulator proposed, among other things, permitting IAs and RAs to provide past performance to clients, allowing IAs to provide second opinion to clients on pre-distributed assets, and relaxing the education criteria for IAs and RAs.

"This paper seeks comments from public on proposals related to amendments to regulatory framework for Investment Advisers (“IAs”) and Research Analysts (“RAs”) with the objective of facilitating ease of doing business and addressing practical challenges in the current framework," stated the consultation paper.

The proposed measures are as follows: i. Permitting IAs and RAs to provide past performance to clients; ii. Allowing IAs to provide second opinion to clients on pre-distributed assets; iii. Easing the compulsory corporatization process for IAs; iv. Relaxation in education criteria for IAs and RAs; v. Relaxing the requirement of furnishing of proof of address; and vi. Relaxing the requirement of furnishing of CIBIL report, Net worth/Asset Liability statement, infrastructure detail," it added.

Permitting IAs and RAs to provide past performance to clients

"IAs/RAs may provide past performance data certified by a member of ICAI/ICSI/ICMAI to a client (including prospective client)on specific request of such client... Such past performance data shall be communicated to clients (including prospective clients) on a one-to-one basis and such past performance data shall not be made available to general public through public media/website of IA/RA or any other mode," stated the SEBI paper while adding that such communication must be accompanied with a disclaimer.

Allowing IAs to provide second opinion to clients on pre-distributed assets

"Considering the submission of the industry association and for ensuring that the investors get access to second opinion if desired, it is proposed that IAs, for clients seeking second opinion on assets under pre-existing distribution arrangement with other entity, may be permitted to charge fee on the assets under pre-distribution arrangement under AUA mode, subject to a limit of 2.5% of such assets value per annum," stated the SEBI paper.

"In such cases, IAs must disclose and seek consent from such clients that apart from the advisory fees payable to the IA, the clients will be incurring costs for distributor consideration for such assets. Such consent will need to be taken on an annual basis," it added.

Easing the compulsory corporatization process for individual IAs

"An individual IA shall immediately intimate the Investment Advisers Administration and Supervisory Body (IAASB) once they reach the threshold of 300 clients or collect fees of three crore rupees in a financial year, whichever is earlier. The IA shall initiate the process of transition from individual to non-individual IA, immediately upon reaching the threshold. The IA shall apply for in-principle approval for registration as a non-individual IA within three months from the date on which the threshold is reached," stated the SEBI paper.

Within three months from the in-principle approval for registration as a non-individual IA, the IA shall complete the transitioning process. Upon completion of the transition, the IA shall surrender the registration certificate as an individual IA and shall receive registration certificate as non-individual IA. During the transitioning period, IAs will be permitted to on board new clients and collect fees in excess of threshold limit," it added.

Changes to the educational qualification for registration as IA/RA

Currently, a graduate in specified fields such as finance, business management, accountancy, commerce, economics, capital market etc. is considered eligible for registration as IA/RA under the respective Regulations.

SEBI has proposed a graduate degree or any equivalent educational qualification from a university or institution recognized by the Central Government or any State Government or a recognised foreign university or institution or association or CFA Charter from the CFA Institute; and relevant certification from NISM or from any other organization or institution accredited by NISM can also be considered eligible for registration.

Further, for IAs, a Post Graduate Program in the Securities Market (Investment Advisory) or Post Graduate Program in Financial Planning (PGPFP) or any other program from NISM as may be specified by SEBI can also be considered as eligible.

Meanwhile, for RAs, a Post Graduate Program in the Securities Market (Research Analysis) from NISM or any other program from NISM as may be specified by SEBI can be considered as eligible.