Sebi to tighten norms on Investment Advisers

Market watchdog – Securities and Exchange Board of India (Sebi) has decided to tighten every bolt of Investment advisers (IA) in India.  

On Friday, the regulator proposed various measures in regards to IA with an aim to bring uniform standards across all the intermediaries/persons engaged in providing investment advisory services and also to address the gaps or overlaps in legal or regulatory standards.

Among various measurs, Sebi proposed that mutual fund distributors shall not be allowed to provide incidental or basic investment advice in respect of mutual fund products. These distributors will have to register themselves on Sebi as an IA under the regulations if they feel to provide basic or incidental advisory services.

 A period of 3 years will be granted to those distributors who seek to migrate as investment advisers. Also, if any mutual fund distributors want to shift from commission based model to fee based advisory model will be required to register under IA Regulations.

Also, Sebi said that investment adviser shall accept fees strictly by account payee crossed cheque / demand draft or by way of direct credit into the bank account through NEFT/ RTGS/IMPS or any other mode allowed by RBI.

Further Sebi proposed that no investment advisory service will be offered through separate division or department. The following service will be offered through separate subsidiary. A time of period 3 years will be provided for entities to transfer from separate department or division to separate subsidiary.

As per the existing rules the banks, NBFCs and body corporate were asked to provide investment advisory services to their clients only through separately identifiable departments or divisions (SIDDs).

In regards to person providing investment advice through media segment such as newspaper, television and magazines, etc. Sebi has proposed that these people will have to comply with provisions pertaining to recommendations in public media as specified in Regulation 21 of SEBI (Research Analysts) Regulations, 2014.

It further proposed that investment shall include all financial instruments that are regulated by any financial sector regulator in India. However, advice exclusively on products in non-securities market which are regulated by sectoral regulators shall be outside the scope of the IA regulations

Restrictions were also made on trading tips via electronic portal such as bulk short message services (SMSs), e-mails, blogs, internet and also through social media like  WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc.

Clarification was also provided by Sebi between the activities of investment adviser and research analyst.

Sebi has asked public opinion on its consultation paper on Investment Advisers.