On May 20, 2021, the Securities and Exchange Board of India (“SEBI”) issued an informal guidance (“Informal Guidance”) in connection with the SEBI (Portfolio Managers) Regulations, 2020 (“PM Regulations”) in response to a request from Purnartha Investment Advisers Private Limited (“Purnartha”). Purnartha is registered with SEBI as a portfolio manager and an investment adviser.
In terms of Clause 4(j) of the SEBI circular dated October 5, 2010 (“2010 Circular”), portfolio managers are advised to ensure that clients separately sign the annexure on fees and charges of the client agreement, and add in their own handwriting that they have understood the fees/charge structure. Purnartha had requested a clarification on whether when clients write electronically that they have understood the fees/charge structure, using their fingers or a stylus pen on the relevant portion of the Annexure (on fees and charges) of the portfolio account management account opening form accessed by them on touch sensitive screen of their personal computing device and thereafter, the account opening form is authenticated by the client using such electronic signature or electronic authentication technique stipulated under Section 3 A of the Information Technology Act, 2000 (“IT Act”), this would satisfy the requirement mandated under Clause 4(j) of the 2010 Circular.
SEBI observed that Section 5 of the Information Technology Act, 2000 (“IT Act”) states the following: “Legal recognition of electronic signatures - Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of electronic signature affixed in such manner as may be prescribed by the central government.”
Based on the above, SEBI opined that the intent of Clause 4(j) of the 2010 Circular, as noted from the heading, is to disclose the fees and charges to the client and to ensure that the client has understood and acknowledged the fees and charges structure. Therefore, for compliance with the provision, clients may sign the annexure referred to in the Circular, using electronic signature as per the IT Act and write electronically that they have understood the fees/charge structure, using their fingers or a stylus pen on the relevant portion of the Annexure on fees and charges accessed by them on touch sensitive screen of their personal computing device.
This informal guidance indicates that SEBI encourages adoption of electronic methods for authenticating agreements subject to compliance with the IT Act. Adoption of such electronic methods by SEBI intermediaries will ensure a seamless electronic onboarding system for investors while ensuring their interests are duly protected.
Please find a copy of the Informal Guidance, here and a copy of the SEBI Circular dated October 5, 2010, here.
This update has been contributed by Suchita Ambadipudi (Partner) and Smriti Tripathi (Associate).
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