SEBI released rules for Robo advisors and Investment advisor

By | October 8, 2016

Capital market regulator Securities and Exchange Board of India (Sebi) on Friday has widen the ambit of the investment advisor regulation by including Robo advisors under the provisions of investment advisor rules.

Regulator has proposed slew of measures to monitor the Robo advisors largely known as automated tools or algorithms which provide financial advisory services to investors without any human intervention.

Sebi wants service providers to ensure compliance requirements as per the investment advisory rules. It proposes to ensure that such automated tools are fit for the purpose and can only used by the target client. Providers should also make a disclosure to the clients in relation to how the tool works. Besides, investment adviser using the tool shall be held responsible for the advice.The automated tools used by the advisers shall also be subject to audit and inspection, Sebi said in a consultation paper it had released on Friday.

Regulator has proposed curbs on practice of providing trading tips via SMS, WatsApp, Twitter, Facebook and any other social media platform.It said that no person shall be allowed to provide trading tips, stock specific recommendations to the general public through any other social networking media unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration. The provisons in this regard will be soon added to the (Prohibition of Fraudulent and Unfair Trade Practices (PFTUP) regulations to restrict such activities, Sebi noted.

Sebi said that it has also observed that many entities have started offering various schemes in form of competitions, games, leagues etc. Such schemes are generally based on predicting the price movement of securities and are neither approved nor endorsed by market regulator. It has clarified that there is no recourse available to investors from Sebi with regard to any loss incurred.

The entities offering such schemes may have vested interest and there is no regulatory obligation on them, hence no obligation on organizer to make any disclosure. Putting curbs on such practice Sebi proposed that “No person shall organize or offer any scheme/ on securities or related to securities market and accordingly a provision shall be added in the PFUTP.”

In the wake of mis-selling of investment products, Sebi has also proposed to define the term ‘investment product’ that would include all financial instruments that are regulated by any financial sector regulator in India. However, advice exclusively on products in non-securities markets which are regulated by sectoral regulators shall be outside the scope of the IA regulations, it said.

It is also proposed to clarify that the persons providing investment advice in any broadcast or print medium which is available to the public in general shall have to comply with provisions pertaining to recommendations in public media as specified in Sebi’s (Research Analysts) Regulations, 2014 and accordingly shall be required to comply with the IA regulations.

In order to have a level playing field in respect of investment advisory services offered on mutual fund products, it is proposed mutual fund distributors shall not be allowed to provide incidental or basic investment advice in respect of mutual fund products. However, if they want to engage themselves in providing incidental or basic investment advisory services on mutual fund products, they need to register themselves as an investment adviser under Sebi rules.

Besides, mutual fund distributors who want to shift from commission based model to fee based model shall be also required to register as an investment adviser. Sebi also proposed that no person shall be allowed to use the name ‘independent financial adviser’ or ‘wealth adviser’ unless he obtains registration from Sebi as an investment adviser.

Besides, Sebi has also proposed measures in terms of registration of research analyst, advertisement code, display of details on website, recognition of chartered accountant analyst

Sebi seeks public comments by November 4.

Download  Paper :-Amendment/ Clarifications to the SEBI (Investment Advisers) Regulations, 2013

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