Explore the mandatory registration process for Investment Advisors under SEBI regulations. Learn about the regulatory framework, compliance audits, and recent SEBI actions against non-compliance.
What is Investment Advisor?
Investment Advisor is a person or an organization who gives ‘investment advice’ to another person in exchange for monetary value. Any person or organization to carry business as an Investment Advisor needs registration with the Securities and Exchange Board of India (‘SEBI’) under SEBI (Investment Advisors) Regulations, 2013 (‘SEBI Regulation’).
SEBI Regulation provides that no person shall act as an investment adviser or hold himself out as an investment adviser unless he has obtained a certificate of registration from SEBI.
No person, while dealing in the distribution of securities, shall use the nomenclature ‘Independent Financial Adviser’ or ‘IFA’ or ‘Wealth Adviser’ or any other similar name unless registered with the SEBI as Registered Investment Adviser (‘RIA’). Hence, registration is compulsory for carrying out investment advisory activities.
Regulatory Framework to register investment advisor
There are the following 2 bodies dealing with the RIAs: 1. Securities and Exchange Board of India (‘SEBI’) which is the regulatory body for RIAs; and 2. BSE Administration and Supervision Limited (‘BASL’) is a supervisory body entrusted with the supervision of the working of RIAs.
SEBI prescribes the registration terms, qualification, eligibility criteria, fees to charge from the client, agreement with the client, and implementation services. SEBI has been amending the rules for RIAs from time to time to enhance investor confidence and increase transparency in investment advisory services. On the other side, BASL supervises the working of RIAs in India.
The following are the regulations applicable to RIAs in India:
1. SEBI (Investment Advisors) Regulation, 2013;
2. SEBI circular on Measures to strengthen the conduct of Investment Advisors dated 27th December 2019;
3. SEBI circular on Guidelines for Investment Advisor dated 23rd September 2020;
4. SEBI circular on Publishing Investment Charter and disclosure of Investor Complaints by Investment Advisor on their website / mobile applications dated 13th December 2021; SEBI circular on Investment Advisory Services for Accredited Investors dated 21st December 2021;
5. BASL Circulars.
Compliance Audit
As per Regulation 19(3) of SEBI (Investment Advisor) Regulation, 2013 and SEBI circular dated 23rd September, 2020 titled “Guidelines for Investment Advisers”, Investment Advisers shall ensure that Annual Compliance Audit in respect of compliance of SEBI regulation and circulars issued thereunder shall be conducted.
The Audit shall be completed within 6 months from the end of each financial year i.e. by 30th September.
Such a Compliance audit needs to undertaken by the Practicing Company Secretary (PCS) or Practicing Chartered Accountant and needs to be submitted to the ‘BASL’.
RIAs must along with audit report, report the adverse findings, if any, along with action taken thereof to BASL within a period of one month from the date of the compliance audit report but not later than October 31st of each year. RIAs who are also providing distribution services, should get a certificate from an auditor confirming compliance with the client level segregation requirements. This certificate will form part of the compliance audit.
Advise for market participants
So, on reading the above extract it is now clear that any person or a company who wants to provide investment advice needs to have registration with SEBI. So, the question arises is that if an entity or a person fails to register himself with SEBI then are there any consequences?
Debarment of a Bollywood Actor for giving investment advice through YouTube Channels
Recently in a case SEBI has debarred one of the famous Bollywood actors and his wife for making recommendations on investment through YouTube Channels. In this case SEBI has stated that whenever there was a recommendation on a particular share through the YouTube Channels there was a corresponding increase in share price of that particular stock. SEBI has also with evidence proven that the persons making the recommendations has dumped shares of that particular company.
It also needs to be highlighted here that SAT has heard this and SAT has reserved its order in this case.
– Copy of SEBI order – False & misleading Youtube videos – Sharpline stock – Price manipulation – SEBI passes interim order
SEBI takes action against channels providing unsolicited investment advise
Strict actions have also been taken by SEBI on few ‘Telegram’ channels for providing unsolicited investment advice. According to SEBI providing unsolicited investment advise and recommendations for investment in shares is considered as ‘Fraud’ and ‘Creation of False Market’. This is subject to penalty by SEBI under SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.
SEBI registered intermediaries are also subject to code of conduct specified as per SEBI Regulations. It is also seen that recently SEBI has done investigation of certain SEBI registered investment advisors wherein SEBI has held those Investment Advisors liable for not complying with code of conduct. Further certain Investment Advisors have also been held liable for not complying procedural norms relating to KYC, segregation of funds etc. as prescribed under SEBI Regulations.
https://taxguru.in/sebi/sebi-order-share-tips-via-social-media-platforms-telegram.html
– SEBI cracks down on ‘Telegram Channel’ providing advise on listed companies.
SEBI Hint’s at taking action on unsolicited investment advice
SEBI has also been advising market participants to refrain from providing unsolicited investment advise. Recently Whole Time Member had made a public statement in this regard. Hence it is very much important that before providing investment advise we comply with relevant regulatory framework.
https://www.moneycontrol.com/news/business/markets/sebi-plans-to-frame-guidelines-to-control-unsolicited-fin-market-advise-from-social-media-influencers-official-10157131.html – Statement by SEBI WTM
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement
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