SEBI initiates proceedings against the investment advisors and takes various actions depending on the violations observed. We have been receiving multiple queries with respect to proceedings and actions initiated by SEBI. To deal with the same and to aware all the Investment adviser on the same, we have come out with the details in form of FAQs. Probable the same would help you understand the process in details and plan your activities accordingly.

FAQs on proceedings and actions initiated by SEBI against Investment Advisers:

• What kind of proceedings are initiated by SEBI against Investment Advisers ?

SEBI predominantly initiates inspection proceedings against the Investment Advisers. Other than that, in some cases, examination of activities of Investment advisers are initiated based on complaints or references received by SEBI against the Investment Advisers.

• What triggers the proceedings by SEBI against the Investment advisers ?

Proceedings initiated by SEBI against Investment Advisors are predominantly triggered by two things:

1. Complaints
2. Random selection at the time of annual inspection process

• What are the steps of proceedings initiated by SEBI against Investment Advisors ?

Once, SEBI starts the proceedings against the Investment Adviser, SEBI collect the documents and information from Investment Advisors and from Complainants, if any. Based on the data collected, observation are made with respect to the violations of regulations and circulars.

Based on the violations observed and clarifications received from the Investment Adviser, violations are finalized and accordingly, actions against the Investment Advisers are proposed to the concerned authorities.

• What type of actions are taken by SEBI against Investment Advisers ?

Type of Actions taken by SEBI against Investment Advisers are as below:

• Administrative Actions

Administrative actions are soft actions such as:

1. Administrative Warning
2. Deficiency/Caution letter
3. Advice letter

Enforcement actions such as penal/ criminal proceedings/ prohibition/ debarments/ disgorgement/ refund actions such as:

• Enforcement Actions

1. Proceedings u/s 11 of SEBI Act (interim/ final/ confirmatory orders)
2. Enquiry proceedings
3. Adjudication Order
4. Prosecution
5. Multiple Enforcement Actions

• What kind of violations attracts Administrative Actions ?

Administrative actions are soft actions against the violations which are not grave in nature. It is observed that Administrative actions are primarily proposed for the violation which can be termed as unintentional and doesn’t result in any illicit gain to the Investment advisers. These violations are mostly procedural in nature.

In terms of Investment Advisory activities, violations such as missing KYC records for some clients (not all the clients), non-adoption of some mandatory policies, non-maintenance of some records (not all) etc. attracts Administrative Actions. Administrative Actions are proposed for violations which are minor and first time. If the violations are continued or repeated even after administrative actions then enforcement actions are undertaken.

• What kind of violations attracts Enforcement Actions ?

Enforcement actions are penal/ prohibition/ debarments/ disgorgement/ refund /cancellation of registration actions. It is observed that Enforcement actions are primarily proposed for the violation which can be termed as intentional and result in illicit gains to the Investment advisers. These violations are mostly related to convening the investment advisory without adopting the mandatory procedures which are prescribed under the regulations.

In terms of Investment Advisory activities, violations such as not adhering to the KYC guidelines of SEBI, not undertaking risk profile assessment and/ or suitability assessment, non-maintenance of all the requisite records, selling products to its clients which are not appropriate to their risk profile, non-redressal of client grievances, mis-utilization of client’s funds etc. attracts Enforcement Actions.

Enforcement Actions are proposed for violations which are major and repeated. If the violations are grave or continued or repeated even after Enforcement actions then inquiry proceedings for cancellation of registration are undertaken.

______________________________________________________________________________________________________________________________

Disclaimer: The views and opinions expressed herein are my personal views and opinions and do not necessarily reflect the official policy and position of any other agency, organization, employer or company. Assumptions made in the analysis are not of the position of any entity other than me. I make no representations as to accuracy, completeness, correctness, suitability or validity of any information and will not be liable for any errors, omissions or damages arising from its use. It is reader’s responsibility to verify their own facts.