SEBI finally announces the setting up of performance validation agency called PaRRVA

Given the amount of and the sensitivity of the data that the PVA would handle, the regulator had proposed that it be managed by one or more MII.

The market regulator has finally announced the setting up of the highly awaited performance validation agency (PVA) called the Past Risk and Return Verification Agency (PaRRVA). Research analysts (RAs), investment advisors (IAs) and algo providers can seek verification from this agency, according to the regulator's press statement issued on Wednesday.

The Securities and Exchange Board of India (SEBI) met with its Board on December 18. The press statement issued after the meeting said, "In order to facilitate persons regulated by the Board or their agents to market their services to investors using their risk-return metrics, the Board has approved the proposal to recognise a “Past Risk and Return Verification Agency (PaRRVA)” which shall verify the risk-return metrics in respect of services of such persons or their agents. A Credit Rating Agency (CRA) shall act as PaRRVA with a recognized stock exchange serving as PaRRVA Data Centre (PDC)"

The press release said, "PaRRVA shall carry out the verification of risk-return metrics for Investment Advisors (IAs), Research Analysts (RAs) and Algorithmic Trading, and those persons permitted by the Board to offer these services. It is clarified that the risk return metrics verification shall be made only on a prospective basis from the effective date of opting for the PaRRVA service."

This agency will be operational on a pilot basis for a period of two months. During this period, the agency will seek feedback from stakeholders and fine-tune technological systems and processes for a stable and streamlined experience for the stakeholders. Post such fine tuning, PaRRVA will be operational on a regular basis for above mention entities.

The regulator added that availing the agency's services will not be made mandatory and it will be needed only if any entity wants to make a claim about their past risk-return metrics.

Background

The agency was proposed more than a year ago "to validate any claims of performance by SEBI registered intermediaries and other entities, thereby facilitating these intermediaries/ entities to showcase their validated performance to investors to grow the reach of their service." Market insiders say that research analysts (RAs), investment advisors (IAs) and brokerages' algo services have been particularly anxious for this agency to start functioning, to aid in the selling of their products.

In the consultation paper released on August 31, SEBI stated, “There has been a demand from registered intermediaries to showcase their performance to investors in order to establish or enhance their credibility and expand their services to investors. To address this demand, the proposal is to enable registered intermediaries to disclose their performance to investors, while also implementing checks and balances to safeguard investors against unverified claims or performance.”