SEBI issues measures to strengthen the code of conduct for Investment Advisers; prohibits free trial for any product or services; w.e.f. 01.01.2020

SEBI issues measures to strengthen the code of conduct for Investment Advisers; prohibits free trial for any product or services; w.e.f. 01.01.2020

January 3, 2020 Compliance Blog 0

In a Circular dated 27th December, 2019, the Securities and Exchange Board of India (“SEBI”) has issued certain measures to strengthen the conduct of Investment Advisers while providing investment advice to the clients and to protect the interest of investors.

The measures laid down in the Circular will come into force from 1st January, 2020.

Background:

The Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 (“IA Regulations’) lays down the code of conduct for investment advisers.

In order to further strengthen the code of conduct, SEBI has laid down certain additional measures which must be followed by the investment advisers.

[“investment adviser” means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called]

 

The Key Takeaways of the Circular are mentioned below:

  1. Restriction on free trial:

As per the IA Regulations, investment advice can be given after completing risk profiling of the client and ensuring suitability of the product. However, the Investment Advisers are providing advice on free trial basis without considering risk profile of the client. With the Circular coming into force the Investment Advisers will be barred from providing free trial for any products/services to prospective clients. Further, the Investment Advisers should not accept part payments (where some part of the fee is paid in advance) for any product/service.

  1. Risk profiling:

 

In the event of client risk profiling, the Investment Advisers must comply with the following before providing any investment advice to their clients.

  1. Complete the risk profile of the client based on information provided by the client.

  1. Obtain consent of the client on completed risk profile either through registered email or physical document.

  1. Receiving fees through banking channel only:

  • In order to enhance transparency, the investment advisers should strictly receive fees for the services provided by them through account payee crossed cheques / demand draft or by way of direct credit into their bank account through NEFT/ RTGS/IMPS/UPI.

  • The Investment Advisers should not accept cash deposits.

  1. Display of complaint status on website:

 

  • Investment Advisers should display the following information (without scrolling) of their website/mobile app.

Number of complaints
At the beginning of the month Received during the month

 

Resolved during the month

 

Pending   at   the end of the month

 

Reasons  for pendency

 

 

  • Further the information must displayed properly using font size of 12 or above and made available on monthly basis (within 7 days of end of the previous month).

 

For a detailed read of the Circular, please refer to the hyperlink below.

Source: Securities and Exchange Board of India

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