The Securities and Exchange Board of India (SEBI) has introduced pivotal amendments to its Investment Advisers Regulations, marking a significant shift in regulatory frameworks to enhance accountability and governance. These amendments introduce new classifications, expand definitions, and establish specific requirements for individuals and firms providing investment advice.
One of the major updates is the formal recognition of “part-time investment advisers,” allowing professionals to engage in advisory services alongside other occupations or businesses. However, these advisers face constraints, including a cap of 75 clients and a mandate to maintain clear boundaries between advisory and other activities. Correspondence with clients must explicitly identify them as part-time advisers to ensure transparency.
Another critical development is the mandatory integration of a deposit system, replacing previous net worth requirements. Advisers must now maintain a specified deposit with scheduled banks, marked as a lien, to address potential liabilities such as arbitration dues. This provision strengthens financial accountability and offers enhanced security to clients.
Educational and certification standards for investment advisers have also been overhauled. SEBI now requires advisers, their associates, and key management to hold at least a graduate degree and obtain certification from the National Institute of Securities Markets (NISM). Continuous compliance with certification standards is emphasized, ensuring the credibility and expertise of advisers.
The use of Artificial Intelligence (AI) in investment advisory has been explicitly addressed for the first time. SEBI mandates that advisers using AI tools bear sole responsibility for the security, confidentiality, and accuracy of client data. They are also required to disclose the extent of AI usage in their advisory processes, reflecting SEBI’s commitment to ensuring transparency in an increasingly tech-driven industry.
Additionally, the amendments introduce new compliance and record-keeping obligations. Investment advisers must maintain detailed records of client interactions, including emails and call logs. Those managing more than 300 clients or generating fees exceeding ₹3 crore annually are required to transition to a non-individual registration, further enhancing oversight.
To provide clarity on the scope of advisory services, SEBI has mandated disclosure for products or services outside its regulatory purview. Advisers must inform clients about the limitations of SEBI’s oversight concerning such offerings, safeguarding client interests and ensuring informed decision-making.
These regulations also emphasize the establishment of functional websites by advisers to disclose critical information as specified by SEBI. Moreover, compliance officers or independent professionals are now required to oversee adherence to these regulations in non-individual advisory entities, reinforcing internal accountability.
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