On January 8, 2025, the Securities and Exchange Board of India (“SEBI”) issued a pivotal circular revising the regulatory framework for Investment Advisers (“IAs”) under the amended SEBI (Investment Advisers) Regulations, 2013. Below are the key highlights of these updates:
1. Deposit Requirements
IAs must maintain deposits based on client numbers:
(a) Up to 150 clients: Rs. 1 lakh
(b) 151–300 clients: Rs. 2 lakhs
(c) 301–1,000 clients: Rs. 5 lakhs
(d) 1,001+ clients: Rs. 10 lakhs
Deposits must be maintained with a scheduled bank and marked as a lien in favour of Investment Adviser Administration and Supervisory body.
Existing IAs must comply with the above deposit requirements by June 30, 2025. For new applicants applying for IA registration, the deposit requirements will take effect from the date of this circular.
2. Dual Registration as IA and Research Analyst (“RA”)
Individuals or partnership firms registered as RAs can apply for IA registration, provided RA is eligible for grant of certificate of registration as IA under the IA Regulations and IA and RA activities remain clearly segregated.
3. Part-Time Investment Advisers (“PTIA”)
PTIAs can engage in unrelated activities but must disclose such activities to clients, avoid conflicts of interest, and adhere to other guidelines.
4. Principal Officer Designation
Partnership firms registered as IAs without qualified partners must transition to LLPs or body corporates by September 30, 2025.
5. Compliance Officers
Non-individual IAs must appoint independent compliance officers certified by NISM and ensure full compliance with SEBI regulations.
6. Scope of Investment Advice
IAs must disclose and obtain client consent for advice related to products outside SEBI's regulatory purview, clarifying limits on grievance redressal.
7. Use of Artificial Intelligence (“AI”)
IAs utilizing AI tools must ensure data security and disclose the extent of AI use in their advisory services.
8. Fee Structure
Revised fee limits:
(a) Fixed fee mode: ₹1,51,000 per annum per family (up from ₹1,25,000).
(b) AUA mode: Capped at 2.5% of Assets under Advice.
Flexibility in switching fee modes is now permitted without a minimum waiting period.
9. Registration as Non-Individual IA
Individual IAs exceeding 300 clients or Rs. 3 crores in annual fees must transition to non-individual IA registration within three months of crossing these thresholds.
10. Client-Level Segregation of Activities
Advisory and distribution activities must remain segregated, except for institutional clients who waive the requirement via a declaration.
11. Agreements with Clients
Investment advisory agreements must include Most Important Terms and Conditions (MITC) and allow signing via Aadhaar-based e-signatures.
12. Maintenance of Records
IAs providing implementation services must maintain recorded client consent for all execution-related activities to ensure an audit trail.
13. Compliance Audits
Annual audits must cover adherence to regulations and disclose any adverse findings, along with actions taken, both to SEBI and on IA websites.
14. Functional Websites
IAs are required to maintain functional websites with all SEBI-mandated details and confirm compliance by June 30, 2025.
Conclusion
SEBI’s latest guidelines mark a significant step forward in the regulatory landscape for Investment Advisers. By fostering transparency, accountability, and robust compliance measures, these updates aim to build greater trust between advisers and investors.
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