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SEBI's draft on investment advisors, and how the SRO will function


SEBI's draft on investment advisors
The market regulator, Securities and Exchange Board of India (SEBI) has come out with its draft regulations for investment advisors.

It first came out with a paper on the subject in 2007 and based on the feedback it is suggesting a self-regulatory organization (SRO) model for the industry.


According to SEBI, all advisors will register to the SRO. The SRO will lay down the guidelines and enforce the regulations on all its members. The SRO will also be responsible for dispute resolution.

The Incidentally, the US Securities and Exchange Commission too is working on an SRO model for investment advisors.

It has been reported in different sections of the media that the regulators across the world are looking at regulating this industry.

According to the current paper, SEBI states that individuals who wish to register with the SRO should have professional qualification like chartered accountant, a Master of Business Administration in finance or similar qualification from a recognized university. Else such person should have 10 years of experience.

Also, a certification from National Institute of Securities Markets (NISM) or any other entity that is approved by SEBI would also be required.

For institutions like banks that will be in the investment advisory segment, would need to maintain a minimum net worth which would be separate from the net worth required for other activities. It is also necessary that at least two of its key personnel should have relevant experience and necessary certification for the activity.

All investment advisors need to maintain records including investment recommendations and transaction covering a minimum period of five years.


On the question of outsourcing, the regulator was clear that other than research reports other part of the advisory activity cannot be outsourced.

On the question of jurisdiction is made it clear that each financial product besides share securities will be under the respective sectoral regulators.

The market regulator, SEBI, has asked for comments on the draft regulations by October 31.

Story first published: Wednesday, September 28, 2011, 11:09 [IST]
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