On July 03, 2020, the Securities and Exchange Board of India (“SEBI”) notified amendments to the SEBI (Investment Advisers) Regulations, 2013 with the intention to strengthen the regulatory framework for investment advisers (“IAs”). The amendments shall come into effect on the 90th (ninetieth) day following their publication in the official gazette.
Some of the key regulatory changes introduced by SEBI are as follows:
1. Segregation of advisory and distribution activities:
a. There shall be a segregation of advisory and distribution activities at a client level to avoid conflict of interest.
b Individuals shall have the option to register as an IA or provide distribution services as a distributor.
c. For non-individual IAs, the client level segregation shall be at the group level. Moreover, such non-individual IAs have to maintain an arm’s length relationship between their activities by providing advisory services through a separately identifiable department or division.
2. Implementation services:
IAs are allowed to provide implementation services through direct schemes/products in the securities market. However, no consideration can be received directly or indirectly, at the IA’s group or family level for these services.
3. Agreement between the IA and client:
The IA and the client shall mandatorily enter into an agreement to ensure greater transparency.
4. Eligibility criteria for IAs:
a. The enhanced eligibility criteria for registration as an IA includes net worth of Rs. 50,00,000 (Rupees fifty lakhs) for non-individuals and Rs. 5,00,000 (Rupees five lakhs) for individuals.
b. Individual IA or a principal officer of a non-individual IA is required to have enhanced professional or post-graduate qualification in relevant subjects and relevant experience of 5 (five) years while grandfathering existing individual IAs from complying with the enhanced qualification and experience as specified by SEBI.
c. Individuals registered as IAs whose number of clients exceed 150 (one hundred and fifty) in total, shall apply for registration with SEBI as non-individual IAs.
Read the SEBI Press Release here.
This update has been contributed by Vinod Joseph (Partner) and Protiti Basu (Associate).
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