SEBI unveils stricter norms for investment advisers to prevent mis-selling

As per the new norms, investment advisory firms will now have to segregate their advisory and distribution services.
SEBI unveils stricter norms for investment advisers to prevent mis-selling
SEBI unveils stricter norms for investment advisers to prevent mis-selling
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The stock exchanges regulator, the Securities and Exchanges Board of India (SEBI) has made a slew of announcements to further regulate the financial services market.

Most of these relate to the investment advisers who offer services to clients on where to invest. SEBI has now framed new rules which mandate that if an investment advisor also handles distribution of financial products, then the two services will have to be separated and cannot be handled by the same entity. The regulator plans to streamline the fees that shall be charged for these services.

The new set of announcements include laying out enhanced requirements for firms to operate as investment advisers including their net worth etc. This will be taken care of while processing of applications for registration as investment advisers. There will be a method put in place to regularize the existing firms as well.

SEBI has relied on four different discussion papers floated over a period, the last one being in January this year. The regulator had invited and obtained the comments from the public too, to these papers so that the rules now framed are nuanced to reflect the common sentiment among the investors and other stakeholders.

One of the new conditions is that certain category of service providers who are engaged in helping execution of transactions through banks etc. cannot call themselves as investment advisers until they register themselves with SEBI as per the new rules.

Another highlight of the fresh announcements by SEBI is the introduction of a “regulatory sandbox” that will facilitate firms from testing out their new products within a limited environment.

The mutual funds and the fund managers too have been given a consideration by SEBI. There will be some changes brought about in the categorization of funds and there will also be a stipulation that the fund houses make investments in their close-ended schemes. This may be like the promoters holding equity in a company so that they will take more interest in growing them. 

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