The Securities and Exchange Board of India (SEBI) has issued a consultation paper 25th August, 2023, proposing to create a designated platform for fee collection by SEBI registered Investment Advisers (‘IAs’) and Research Analysts (‘RAs’) from their clients. The reason behind this proposal is to ensure that the investors reaches only the registered intermediaries and the unregistered activities can be curtailed down.
With this proposed fee mechanism, SEBI believes that the investors will be able to identity the unregistered services providers and would avoid availing their services.
SEBI had already prohibited the payment of fees in cash and have clearly mentioned that the payment of fees should be through a mode that shows traceability of funds. But, right now the point of concern is the increase in unregistered services as these entities have mislead the investors in breach of IA and RA Regulations.
To read the consultation paper, Click Here.
SEBI’s Proposed Mechanism
SEBI after receiving recommendation from BSE Administration & Supervision Limited (BASL) and Association of Registered Investment Advisers (ARIA) have proposed to set up a separate payment mechanism for collection of fees by IAs and RAs.
Benefits expected:
1. It shall provide clarity to investor on the registration status of the entity.
2. It will boost the confidence among the investors as they would be paying to the SEBI registered intermediaries.
3. It shall motivate them to only approach the registered intermediaries.
How will the mechanism work?
The investors will have to make the payment on the designated platform which shall be monitored by SEBI recognised supervisory body. The IAs and RAs will have to provide details of the designated bank account in which the fees shall be received using this mechanism.
The IAs and RAs will also be entrusted with the responsibility of educate and inform their clients about the mechanism and the details of the mechanism shall form part of the agreement with them. The IAs and RAs will also have to caution the clients about the risks involved in making the payment outside the proposed mechanism and the following disclosure shall be made to the clients:
"Any and all fee payments made by the client for investment advisory or research services rendered by the investment adviser or research analyst must necessarily be conducted through the SEBI-specified mechanism for fee collection. It is imperative to note that any payment made outside of this specified mechanism will not be acknowledged as a valid payment towards investment advisory or research services, as outlined by SEBI (Investment Advisers) Regulations, 2013/SEBI (Research Analysts) Regulations, 2014. In such instances, no grievances pertaining to this matter shall be entertained by SEBI or any other recognized regulatory body under SEBI's purview."
The following flow chart is proposed for fee collection by SEBI registered IAs and RAs:
With this mechanism, SEBI’s intention is to help investors identify and avoid unregistered services. Further, the proposed mechanism will also ensure transparency which shall protect the investors and foster more secure environment for fee collection from clients.
We will now have to wait and watch SEBI’s next steps to isolate these unregistered services providers.
To know more, please reach out to me at anjalibansalcs@gmail.com.