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Business News/ News / India/  Sebi issues norms for stock exchange subsidiary to regulate investment advisors
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Sebi issues norms for stock exchange subsidiary to regulate investment advisors

Sebi had established the first set of rules governing investment advisors in 2013 and has progressively tightened regulations since then to combat mis-selling and fraudulent stock tip operators

The finalisation of a regulator for RIAs comes after a long legal battle that started in 2013. (Photo: Reuters)Premium
The finalisation of a regulator for RIAs comes after a long legal battle that started in 2013. (Photo: Reuters)

MUMBAI: The Securities and Exchange Board of India (Sebi) has allowed stock exchanges to propose a subsidiary to regulate investment advisors. There are around 1,300 Sebi-registered investment advisors (RIAs) in India. These comprise both traditional face-to-face advisors and new-age online platforms.

Sebi had established the first set of rules governing investment advisors in 2013 and has progressively tightened regulations since then to combat mis-selling and fraudulent stock tip operators. It released a consultation paper on Self Regulatory Organisations (SROs) for intermediaries including investment advisors in April 2019. The consultation paper allowed either a body of intermediaries or a subsidiary of a stock exchange to perform this rule.

A circular released on Thursday has settled the matter in favour of an exchange subsidiary.

The finalisation of a regulator for RIAs comes after a long legal battle that started in 2013 when Sebi had decided to appoint a company floated by industry body Association of Mutual Funds in India (Amfi) as an SRO for mutual fund distributors. The decision was challenged by the Financial Planning Supervisory Board (FPSB) in the Securities Appellate Tribunal (SAT). The appeal by FPSB had alleged that the selection process contravened rules that applied to SROs. The SAT, and later the Supreme Court, ruled in favour of the FPSB.

Following the ruling, Sebi submitted an application in November 2018 to the Supreme Court, which said that instead of inviting applications a company should be made an SRO based on its experience and capability. Then in April 2019, Sebi issued a discussion paper which forms the basis of exchanges acting as supervisors of investment advisors.

According to the Sebi circular issued Thursday , the stock exchange needs to have an operational history of at least 15 years, a minimum net worth of at least 200 crores. It also must have infrastructure such as nation-wide terminals and investor service centers. Once authorized by Sebi, the exchange subsidiary is required to discharge several regulatory responsibilities. These include maintaining a database of RIAs, on-site and offsite supervision of RIAs, grievance redressal against IAs and administrative action against RIAs. The subsidiary also needs to monitor the activities of IAs by obtaining periodic reports and refer matters to Sebi for enforcement action.

"The approved subsidiary can and should provide for directors elected from practising RIAs. How the route chosen for the SRO, namely a subsidiary of the existing stock exchanges, pans out remains to be seen," said Harsh Roongta, founder, Fee Only Investment Advisors LLP, a licensed Sebi RIA firm. “It will be critical that the finally shortlisted SRO has a good understanding on the processes involved in comprehensive financial planning, which is an area that a lot of investment advisors focus on, beyond transaction based advice and execution," said Vishal Dhawan, founder, Plan Ahead Investment Advisors, also a licensed Sebi RIA firm.

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ABOUT THE AUTHOR
Neil Borate
Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
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Published: 07 Aug 2020, 12:05 PM IST
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