Regulation of investment advisors

SEBI has vide its circular dated 6th August, 2020 sought to regulate the administration and supervision of investment advisors through a wholly owned subsidiary of recognised stock exchanges. It can be a newly incorporated subsidiary or an existing subsidiary also.

The parameters for the same are given below.

A. Criteria for grant of recognition-

The recognition of stock exchange subsidiary, in terms of the aforesaid Regulation 14, shall be based on the eligibility of the parent entity, i.e. the stock exchange, for which the following eligibility criteria is laid down:
i. Number of years of existence: Minimum 15 years
ii. Stock exchanges having a minimum networth of INR 200 crores
iii. Stock exchanges having nation-wide terminals
iv. Investor grievance redressal mechanism including Arbitration
v. Capacity for investor service management gauged through reach of Investor Service Centers (ISCs)- Stock exchanges having ISCs in at least 20 cities

B. Setting up of requisite systems by stock exchanges for the purpose

i. The stock exchange shall either form a subsidiary or designate an existing
subsidiary for the purpose of regulating IAs.
ii. The subsidiary shall include in its MoA, AoA and bye-laws, requisite provisions to fulfil the below mentioned responsibilities.
iii. The subsidiary shall put in place systems/process for grievance redressal, administrative action against IAs, governing IAs, maintaining data, sharing of information with SEBI etc.
iv. The subsidiary shall have the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge the below mentioned activities. Infrastructure may be shared with other group entities where required.
C. Responsibilities of subsidiary of a stock exchange-

The subsidiary of a stock exchange shall have following responsibilities:
i. Supervision of IAs including both on-site and offsite
ii. Grievance redressal of clients and IAs
iii. Administrative action including issuing warning and referring to SEBI for enforcement action
iv. Monitoring activities of IAs by obtaining periodical reports
v. Submission of periodical reports to SEBI
vi. Maintenance of database of IAs

The stock exchanges who are fulfilling the above criteria are required to submit their application to the SEBI within 30 days of this circular.

Copy of SEBI circular can be found at this link https://www.sebi.gov.in/legal/circulars/aug-2020/administration-and-supervision-of-investment-advisers_47276.html

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