In January, SEBI floated a consultation paper on review of regulatory framework for investment advisers and sought comments from the public on the same. The consultation paper had created a buzz among RIA community as to how the new regulatory regime would turn out for them in an already challenging and competitive environment.

The so called wait is over and finally SEBI has come out with final version of amendment with respect to SEBI (Investment Advisers) Regulations, 2013 vide their press release PR No.37/2020 on 3rd July, 2020. As per the notification these amendments shall come into force on the ninetieth day from the date of their publication in the Official Gazette. These amendments are intended to strengthen the regulatory framework for investment advisers.

Key highlights of SEBI (Investment Advisers) (Amendment) Regulations, 2020:

  • Eligibility criteria for registration as an Investment Adviser including net worth of Rs. 50 lakhs for non-individuals and Rs. 5 lakhs for individuals
  • Segregation of Advisory & Distribution Activities at client level to avoid conflict of interest.
  • For individual investment advisor there is an option to register as an Investment adviser or provide distribution services as a distributor.
  • If a non-individual investment adviser has a clear mechanism and also he maintains an arm’s length relationship between advisory and distribution services, he can continue with both.
  • Investment Advisers are allowed to provide implementation services (Execution) through direct schemes/ products in the securities market. However, no consideration can be received directly or indirectly, at investment adviser’s group or family level for these services.
  • Mandatory Client agreement between the Advisor and client
  • Annual Compliance Audit to be mandatorily submitted to SEBI
  • Fee charge by investor advisor shall be as per the manner prescribed by SEBI
  • If an individual registered as an individual investment advisor has more than 150 client then he will have to opt for Non- individual investment advisor registration
  • Individual investment adviser or a principal officer of a non-individual investment adviser to have enhanced professional or post-graduate qualification in relevant subjects and relevant experience of five years while grandfathering existing Individual Investment Advisers from complying with the enhanced qualification and experience as specified by SEBI

Circulars with respect to above amendments are to be issued by SEBI in near future.

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March 2024