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ADMINISTRATION AND SUPERVISION OF INVESTMENT ADVISERS-SEBI

June 30, 2021
SEBI - ADMINISTRATION AND SUPERVISION OF INVESTMENT ADVISERS

The Security and Exchange Board of India (SEBI) vide its circular dated June 18, 2021[1], has laid down the framework for administration and supervision of Investment Advisors (herein after referred as “IAs”) with reference to SEBI (Investment Advisers) Regulations, 2013 (herein after referred as “IA Regulations”), notified on January 21, 2013. As per Regulation 14 of IA Regulations, SEBI has the discretion to recognize any body or body corporate for purpose of regulating IAs and delegate administration and supervision as per the specified terms and conditions. Such an entity, entrusted with the supervision and administration of IAs shall be identified as “Investment Adviser Administration and Supervisory Body” (herein after referred as “IAASB”). SEBI, through this Circular has granted recognition to BSE Administration and Supervision Limited (BSL) as IASSB for a period of 3 years from June 01, 2021.[2]

BACKGROUND:

According to SEBI, the number of registered IAs has significantly increased from 129 to 1347 between 2014 to 2020.[3] This has led in an increase in numerous investor related complaints against IAs including false promises of returns, assured returns, mis-selling, non-disclosure of complete services leading to charging exorbitant fees. Hence, in order to strengthen the IA regulatory framework, SEBI has notified several amendments to IA Regulations and established IASSB (through this circular), in accordance to Regulation 14 of IA Regulations.

FAMEWORK:

A. IAASB shall have the following responsibilities:

  • Supervision of IAs including both on-sit and offsite;
  • Grievance redressal of clients and IAs;
  • Administrative action including issuing warning and referring to SEBI for enforcement action;
  • Monitoring activities of IAs by obtaining periodical reports;
  • Submission of periodical reports to SEBI;
  • Maintenance of database of IAs.

B. The Board of the IAASB shall be chaired by a Public Interest Director and shall also comprise of a Director, who shall provide investor perspective.

C. SEBI shall continue to concurrently administer and supervise all registered IAs as well as periodically inspect functioning of IAASB.

D. SEBI registered IAs shall be required to ensure compliance of Regulation 6(n) of the IA Regulations. Hence, all existing IAs shall seek membership of IAASB in such a manner as may be specified by the IAASB, within a period of three months of IAASB gaining recognition from SEBI.[4]

E. The fees payable to SEBI has been modified by the way of amendment to IA Regulations, with effect from April 01, 2021. Unless specified otherwise by SEBI, existing IAs shall be required to pay membership fee to IAASB in a manner prescribed by IAASB, at the time of payment of fees to SEBI as per Second Schedule of the IA Regulations, to keep their registration in force. Any subsequent payment of the membership fees shall be in the manner specified by IAASB. Payment of fees as per Second Schedule of the IA Regulations[5]:

  • Every Applicant shall pay non-refundable application fees along with the grant of certificate of registration as under:
  • For individual and firms – Rs. 2000
  • For Body Corporate including Limited Liability Partnership – Rs. 10000
  • Every applicant shall pay registration fee at the time of grant or renewal of certificate by the Board as under:
  • For individual and firms – Rs. 3000
  • For Body Corporate including Limited Liability Partnership – Rs. 15000

F. All SEBI registered IAs shall be required to submit periodic reports to IAASB in such manner as may be specified by IAASB.

ANALYSIS OF BASL:

BSE Administration and Supervision Limited (BASL) is a competent wholly owned subsidiary of BSE and complies with the requirements of being recognized whole-owned subsidiary as per the SEBI circular dated 6 August, 2020.[6]  As per the press release dated 14 June 2021, the total fees payable to SEBI, including fee payable to IAASB shall only be applicable till March 31, 2021[7]. Additionally, the renewal of SEBI’s recognition of BASL as IAASB, shall be subject to satisfactory performance at the end of 3 years from the date of gaining recognition.

CONCLUSION:

Considering the rapid growth in the number of SEBI registered IAs over the years, such regulatory framework provides improvements in management and supervision of IAs. Delegation of administration and supervision of IAs shall lead to a more comprehensive approach towards dealing with IA related complaints. Hence, SEBI, alongside IAASB shall now be responsible to overlook the functioning and conduct of IAs.

 

[1] https://www.sebi.gov.in/legal/circulars/jun-2021/framework-for-administration-and-supervision-of-investment-advisers-under-the-sebi-investment-advisers-regulations-2013_50605.html

[2] https://www.sebi.gov.in/media/press-releases/jun-2021/bse-administration-and-supervision-limited-granted-recognition-for-administration-and-supervision-of-investment-advisers_50540.html

[3] https://www.sebi.gov.in/sebi_data/meetingfiles/dec-2020/1608703133766_1.pdf

[4] https://www.bseindia.com/downloads1/BSE_Administration_and_Supervision_Ltd.zip

[5] https://www.sebi.gov.in/legal/regulations/jan-2021/securities-and-exchange-board-of-india-investment-advisers-amendment-regulations-2021_49541.html

[6] https://www.sebi.gov.in/legal/circulars/aug-2020/administration-and-supervision-of-investment-advisers_47276.html

[7] https://www.sebi.gov.in/media/press-releases/jun-2021/bse-administration-and-supervision-limited-granted-recognition-for-administration-and-supervision-of-investment-advisers_50540.html

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