Sebi's Performance Validation Agency coming soon to verify claims of higher returns

The proposed Performance Validation Agency would validate claims related to investment advice.

An agency to verify all claims of market outperformance is coming very soon for investors, Sebi Chairperson Madhabi Puri Buch said on August 2.

"You will soon see the Performance Validation Agency. NSE has done some brilliant work,” Puri said at a FICCI capital market conference in Mumbai, praising the National Stock Exchange (NSE) for its role in an innovative use of technology for affordability, which will enhance the credibility of investment intermediaries.

The PVA will allow anyone claiming higher returns and market outperformance - whether algorithm providers, research analysts, investment advisors, or portfolio managers - to validate using advanced technology at an affordable cost, Madhabi Puri added.

The initiative on PVA is part of market regulator Sebi's broader effort to facilitate and streamline registration and operational processes for intermediaries. "We are trying to speed up registration of intermediaries. We should ensure that people who want to come into this ecosystem are facilitated as soon as possible," Buch said. "We are very cognizant that their (intermediaries) lives should be made easier through the entire life cycle. Therefore, we set up working groups for ease of doing business."

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The PVA is being proposed to validate claims related to investment advice, 'Buy/ Sell/Hold' recommendations, mutual fund schemes, portfolio management services, as well as algorithms. The initiative is a response to various representations from the investment advisory industry seeking a mechanism to substantiate their performance claims.

On August 31, 2023, SEBI had issued a consultation paper outlining the proposal for a PVA, intended as a subsidiary of Market Infrastructure Institution (MII) or an entity jointly supported by multiple MIIs. The agency would serve investors by ensuring all performance claims made by registered intermediaries sach as Investment Advisors (IAs), Research Analysts (RAs), and portfolio managers, are verified and credible.

Currently, Asset Management Companies (AMCs) and portfolio managers report their performance, but these claims are self-verified. The introduction of a PVA will ensure a dedicated agency validating such claims, thereby enhancing transparency and trust in the market.