KEY HIGHLIGHTS OF SEBI (INVESTMENT ADVISERS) (AMENDMENT) REGULATIONS, 2020

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 3^rd 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.

Following are the key highlights:

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. Now that the environment is certain and things are more clear, we believe this is the time to start planning and implementing your next move towards the new regulatory regime. In order to start planning your move you need to first have a critical look at your existing processes and systems used in advisory. Here, annual compliance audit would be helpful for you in terms of having a critical look vis-à-vis the regulatory requirement and suggest you your next move towards the regulatory compliance.

Additionally, among all the changes, the change in annual compliance audit requirement is very critical as this is the only report as on date which would be mandatory for a RIA to be submitted to SEBI. Non- submission of the same could easily raise an alarm.

We believe, this is high time that the requirement of annual compliance audit should be taken more seriously as a step towards being on the right side of the regulation.

Get inspection-ready and prepare for compliance with us. We provide comprehensive compliance support programs and audit service to guide and support your firm through the maze of regulatory requirements. Feel free to contact us discuss our offerings as per your compliance requirement. We will ensure that compliance is no more a burden for you and you can focus on your core advisory activities.

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