SEBI mulls SRO for investment advisers

‘Time right for self-regulatory entity’

The Securities and Exchange Board of India (SEBI) has proposed a self regulatory organisation (SRO) for the growing number of investment advisers to address issues related to the quality of advice given to investors by such entities.

The capital markets regulator released a consultation paper on Monday, which, among other things, proposed the strengthening of the existing regulatory framework for SROs by introducing features such as a governing board with public interest directors and a clear policy for arbitration and dispute resolution.

“SEBI is in receipt of a large number of complaints alleging charging of exorbitant fees, assurance of returns, misconduct etc. by investment advisers... Given the growth in this segment of the market, it is felt that the time is appropriate to initiate the formation of an SRO [for the sector],” stated the SEBI statement.

As on March 19, 2019, a total of 1,136 investment advisers were registered with the SEBI, including 800 individuals and partnership firms.

The regulator has proposed a governing board with at least 50% public interest directors along with 25% representation each of shareholder directors and elected representatives. Further, the governing board can appoint a managing director or chief executive officer to manage the daily affairs of the SRO.

Incidentally, the regulator has said that there was a need for an SRO for mutual fund distributors — that currently register with Association of Mutual Funds in India (AMFI) — as well to bring in consistency in industry practices and also to take disciplinary action against alleged malpractices such as mis-selling of products and churning of portfolio, among others.

“... an SRO is the first-level regulator that performs the crucial task of regulating intermediaries representing a particular segment of securities market on behalf of the regulator. An SRO would be seen as an extension of the regulatory authority of the SEBI and would perform the tasks delegated to it by the SEBI,” said the paper, while adding that the role of an SRO is developmental, regulatory, related to grievance redressal and dispute resolution as well as taking disciplinary actions.

SEBI has sought public feedback on whether there should be a single or different SRO for different categories of market intermediaries, and whether the minimum net worth criteria for SROs should be enhanced from the current requirement of ₹1 crore.

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Printable version | Feb 26, 2020 10:39:22 PM |

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