Sebi to Propose Major Regulatory Relaxations for Registered Investment Advisors


The Securities and Exchange Board of India (Sebi) is poised to announce a series of proposals aimed at providing significant regulatory relaxations for registered investment advisors (RIAs). Sources close to the development have indicated that the forthcoming consultation paper, expected in July, will address several key concerns within the industry.

Among the anticipated changes is the elimination of the triennial certification mandate, a move that many RIAs believe will mitigate business continuity risks. Currently, RIAs are required to renew their National Institute of Securities Markets (NISM) certification every three years by clearing an exam. The proposed relaxation is expected to remove this requirement, thereby easing the compliance burden on advisors.

The consultation paper is also expected to propose an increase in the current client cap from 150 to a higher limit, potentially doubling it to 300 clients or more. This adjustment aims to alleviate the financial strain on RIAs who are forced to transition into partnership firms or companies upon reaching the existing client threshold, a process that can be financially burdensome, especially for newer advisors with a substantial number of low-paying clients.

Additionally, Sebi is likely to abolish the experience prerequisites for hiring assistants, known as persons associated with investment advice (PAIA). Under current regulations, PAIA must possess at least two years of experience, a requirement that has posed significant challenges for smaller RIA practices in recruiting talent. The proposed changes are expected to lower the educational qualification requirements for PAIAs from a postgraduate degree to a graduate degree, facilitating easier recruitment.

In a significant shift, individuals who provide stock trading tips may be moved from the RIA category to the “research analyst” license. This move aims to clearly distinguish between investment advisors, who offer comprehensive financial planning including insurance and taxation advice, and individuals who provide stock tips based on past trends and other parameters. By reallocating stock tip providers to the research analyst category, Sebi intends to impose stricter regulations on these individuals while relaxing norms for RIAs.

At a conference organized by the Association of Registered Investment Advisors (ARIA) last October, Sebi Chairperson Madhabi Puri Buch acknowledged the compliance burden faced by RIAs and emphasized the regulator’s willingness to collaborate on regulatory reforms. She highlighted the need for industry standards to be set in consultation with Sebi, noting that flexibility is possible where the marginal utility of compliance is low but the cost is high.

The market regulator has been actively engaging with stakeholders to explore possible regulatory relaxations and address the challenges faced by RIAs. The expected proposals reflect a broader effort by Sebi to streamline regulatory requirements and support the growth and sustainability of the investment advisory sector.

These forthcoming changes underscore Sebi’s commitment to fostering a more favorable regulatory environment for RIAs, enabling them to better serve their clients and expand their businesses without the undue burden of stringent compliance requirements.

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