So, finally a long wait is over as SEBI has come out with the Circular just a Week before the applicability of the new regulations. A Circular was expected from SEBI since the notification of new IA Regulations on 3rd July, 2020 to provide clarifications on certain points. Hence, SEBI has issued the Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020 titled “Guidelines for Investment Advisers”.

So, below is the summary of the provisions of the Circular:

(i) Client Level Segregation of Advisory and Distribution Activities

♦ IA’s can now provide either distribution or advisory services to their clients. Further existing clients shall have an option to continue with either of one service.

♦ Family of client would be counted as one client.

♦ IA are also now required to obtain annual/periodic declaration from clients with respect to Dependant family members.

♦ Now IA are required to obtain a certificate from the Auditor with respect to client level segregation within 6 months from the end of Financial Year and shall be form part of Compliance Audit Report.

♦ IA shall ensure compliance of this provision latest by 1st April, 2021.

(ii) Agreement between IA and the client

♦ Every Investment Adviser is now mandatorily required to enter into Advisory Agreement with its clients and shall include all the terms and conditions as mentioned in Annexure A of the said Circular.

♦ No Fee shall be charged from the client prior to execution of the Agreement.

♦ IA shall enter into agreements with all its existing clients by 1st April, 2021 and shall submit the report to SEBI in this regard.

♦ IA shall ensure compliance of this provision latest by 1st April, 2021.

(iii) Fees

♦ IA shall not charge fees more than 2.5% of AUA or Rs.1,25,000 per annum.

♦ Fees can be charged either under AUA mode or fixed fee mode.

♦ IA can charge advance fee for 2 quarters only.

♦ However in case of premature termination of services, fees shall be refunded to the client for the unexpired period.

♦ IA shall ensure compliance of this provision latest by 1st April, 2021.

(iv) Qualification and certification requirement

♦ SEBI has provided 3 years’ time period for complying with qualification requirements for IA and persons associated with Investment Advice.

♦ Further, existing individual IAs who are above 50 years of age are exempted from qualification and experience criteria, However they still need to comply with the NISM Certification requirements.

(v) Registration as Non Individual Investment Advisor

♦ If IA is having clients 150 or more as on 30th September, 2020 shall make an application for registration as non–individual IA latest by 1st April, 2021.

♦ Further such IA shall not on-board fresh clients till grant of registration as non-individual. However IA can provide services to its existing clients till the time it does not get registration as non-individual IA.

♦ Individual IA having more than 150 clients as on 30th September, 2020 shall report their number of clients to SEBI through sebiria@sebi.gov.in by 15th October, 2020 in the following format:

Name of IA Registration No. No. of clients as on September 30, 2020 Registered office address

(vi) Maintenance of record

♦ In addition to the records mentioned in Regulation 19, IA shall now maintain records of all interactions with the client (including prospective client) such as physical record written & signed by client, telephone recording, email from registered email id, record of SMS messages or any other legally verifiable record.

♦ Such records shall be maintained for a period of at least 5 years.

♦ IA shall ensure compliance of this provision latest by 1st January, 2021.

(vii) Audit

♦ Compliance Audit shall be completed within 6 months from the end of Financial Year i.e. before 30th September and adverse findings, if any shall be intimated to SEBI within 1 month of the Audit.

(viii) Risk profiling and suitability for non-individual clients

♦ In case of non-individual clients, IA shall use Investment Policy as approved by its Management of such non-individual IA.

♦ IA shall ensure compliance of this provision latest by 1st January, 2021.

(ix) Display of details on website and in other communication channels

♦ IA shall now display the following information prominently on its website, mobile app, printed or electronic materials, know your client forms, client agreements and other correspondences with the clients:

  • Complete name of Investment Adviser as registered with SEBI,
  • Type of Registration-Individual, Non-Individual,
  • Registration number, validity of registration,
  • Complete address with telephone numbers,
  • Contact details of the Principal Officer –contact no, email id etc.,
  • Corresponding SEBI regional/local office address.

♦ IA shall ensure compliance of this provision latest by 1st January, 2021.

Due Dates for various Compliances for Investment Advisers

S. No. Particulars Due Date
1. Compliance Audit for Financial Year 2019-20 30th September, 2020
2. Reporting of number of clients to SEBI 15th October, 2020
3. Maintenance of records of interaction with all clients 1st January, 2021
4. Investment Policy for non-individual clients 1st January, 2021
5. Display of details on website and in other communication channels 1st January, 2021
6. Client Level Segregation 1st April, 2021
7. Entering into Agreement with clients 1st April, 2021
8. Fee Limit 1st April, 2021
9. Registration as non-individual IA 1st April, 2021
10. Submission of Report to SEBI confirming the compliance related to entering into agreement with clients 30th June, 2021
11. Compliance Audit for Financial Year 2020-21 30th September, 2021
12. Reporting of adverse findings of Audit 31st October, 2021

*****

DISCLAIMER: The information given in this document has been made on the basis of the provisions stated in the SEBI Circular SEBI/HO/IMD/DF1/CIR/P/2020/182, SEBI (Investment Advisers) (Amendment) Regulations, 2020 and SEBI (Investment Advisers) Regulations, 2013. It is our personal opinion and does not represent view of any regulatory authority. It is based on our analysis, interpretation and understanding of applicable laws as on date. Under no circumstances whatsoever, we shall not be responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document.

Further it is for informational purpose only. In case of any query feel free to connect us at info.compliancemanager@gmail.com 

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