SEBI moots self-regulation for investment advisors

The Securities and Exchange Board of India (SEBI) on Monday put out draft regulations for investment advisors, more than four years after it first came out with a paper to this effect. The regulator has suggested a self-regulatory organisation (SRO) model for the segment.

The SRO would need to register advisors, lay down and enforce regulations, as well as assume responsibility for dispute resolution, said a note on the SEBI website.

“Its duties would include registering and setting minimum professional standards, including certification of investment advisors, laying down rules and regulations and enforcing those; informing  and educating the investing public; setting up and administering a disputes resolution  forum for investors and registered entities etc.”

Incidentally, the US Securities and Exchange Commission too is working on an SRO model for investment advisors.

“This shows that regulators across economies are concerned about this issue. We can expect the final guidelines to come earlier than that of the US,” said Ranjeet S Mudholkar, vice-chairman and chief executive officer, Financial Standards Planning Board India, an organisation of financial planners, which has shown interest in becoming an SRO.

SEBI has said that individuals should acquire a professional qualification such as becoming a chartered accountant, a Master of Business Administration in finance or similar qualification from a recognised university in order to register with the SRO as an investment advisor.

Alternatively, the person would need to have 10 years of experience.

In addition, a certification from a SEBI-approved organisation such as the National Institute of Securities Markets would also be required.

For institutional entities such as banks which wish to act as investment advisors, the requirement includes a need to maintain a minimum net worth over and above any net worth required for any of its other activities. Additionally, entities should have at least two key personnel having the relevant experience and necessary certification for the activity.

Investment advisors would also have to maintain records including investment recommendations and transaction for at least five years.

Other than sourcing of research reports, no other part of investment advisory activity can be outsourced.

Issues relating to financial products other than securities shall come under the jurisdiction of the respective sectoral regulators.

SEBI has invited comments on the draft regulations by October 31.