Sebi segregates distribution services of investment advisers
18 February 2020
The Securities and Exchange Board of India (Sebi) at its meeting on Monday cleared the norms for investment advisers, proposing client level segregation of advisory and distribution activities so as to avoid conflict of interest.
As per the new Sebi norms, an entity registered as investment advisor can provide either advisory services or distribute financial products to one client. Client has been defined as family, which includes dependent spouse, children and parent.
Further, individual investment adviser shall not provide distribution services. Implementation or execution of services through direct schemes/products in the securities market shall be allowed to investment advisers for the convenience of the investors.
For a greater transparency, Sebi has mandated that an agreement would have to be signed between an adviser and the client incorporating all terms and conditions. This would also bring clarity in payment of fees and introduction of upper limit on the fees charged to Investors.
Sebi has enhanced the eligibility criteria for registration as an Investment Adviser, including net worth, qualification and experience requirements while grandfathering existing Individual Investment Advisers from complying with the enhanced qualification and experience as specified by the board.
Person dealing in distribution of securities shall not use the nomenclature `Independent Financial Adviser’ (IFA) or `Wealth Adviser’ or any other similar name, unless registered with Sebi as Investment Adviser.
The new directives are based on a consultation paper issued by Sebi on Review of Regulatory Framework for Investment Advisers in January 2020 and comments from the public on the proposals.
Regulatory `sandbox’ for new products and services
The Sebi board on Monday also decided to form a `Regulatory Sandbox’ for live testing of new products, processes, services and business models by deploying them on a limited set of eligible customers, for a specified period of time, with certain relaxations in the extant Sebi regulations and guidelines.
To begin with, all entities registered with Sebi under Section 12 of the Sebi Act 1992, shall be eligible for testing within the Regulatory Sandbox. An entity can participate on its own or use the services of a FinTech firm. The registered entity shall be treated as the principal applicant, even if it uses the services of a FinTech firm, and shall be solely responsible for testing of the solution in the sandbox.
Sebi has considered the cross domain approach for Regulatory Sandbox, wherein a regulated entity shall be permitted to test solutions for activities for which it is not registered.
The board deliberated on the proposal of regulatory framework to facilitate and operationalise the Regulatory Sandbox framework by inserting a common chapter in respective regulations of Sebi for granting limited certificate of registration to the entity interested in applying for testing in the Regulatory Sandbox. This concept of limited registration shall facilitate the entities to operate in a Regulatory Sandbox without being subjected to the entire set of regulatory requirements to carry out that activity.
Infrastructure Investment Trusts
Semi also approved amendments to Sebi (Infrastructure Investment Trusts) Regulations, 2014 and Sebi (Real Estate Investment Trusts) Regulations, 2014, providing for fast track rights issue of units by REITs and InvITs to be provided for in the respective regulations.
As per the amended Sebi (Infrastructure Investment Trusts) Regulations, 2014, the requirement of 5 years’ experience in infrastructure sector for investment manager of an InvIT, the combined relevant experience of not less than 30 years of the directors/partners/employees of the investment manager shall also be considered.
Mutual Funds Regulations
Sebi also approved amendments to the Mutual Funds Regulations in order to reduce concentration of custodial services for gold or gold related instruments. The board approved the proposal to amend the SEBI (Mutual Funds) Regulations, 1996 providing for non-bank custodians in addition to bank-custodian to offer custodian services for gold or gold related instruments of Gold ETFs.
Currently, the investment by the sponsor or asset management company is mandatory in all schemes except close ended schemes. In order to bring uniformity across schemes, the board has decided that sponsor or AMC shall invest in close ended schemes also.