SEBI has issued the Consultation Paper on Review of Regulatory Framework for Investment Advisers and Research Analysts on 06thAugust, 2024 seeking public comments on the proposed changes. SEBI on December 16, 2024 issued the Research Analysts (Third Amendment) Regulations, 2024. These will be effective from the date of its Publication in Official Gazette i.e. from 16th December, 2024.
Small summery of Amendment of SEBI RA Regulations is as under:-
Major changes in amended Regulation
1. Inclusion of new concept of ‘Part-time research analyst’ – It means an individual or a partnership firm who for consideration, is engaged in the business of providing research services and is also engaged in any other business activity or employment.
“Other business activity or employment” means such activity or employment which is not related to securities and does not involve handling or managing of money or funds of client or person; or not related to providing advice or recommendation to any client or person in respect of any products or assets for investment purposes.
A Part time research analyst can service not more than 75 clients in total at any given point in time.
2. The definition of Research services now includes ‘Trading Calls’. “trading calls” means intraday, ultra-short duration, non-delivery based (other than hedging) recommendation or any recommendation related to securities that are not personalized or investor specific.” The definition of trading calls has been now provided to provide better clarification to the role of research analysts.
3. Specific provision regarding KYC has been inserted in the RA Regulations. RAs need to obtain KYC documents from their “fee-paying” clients and keep them in their records. The consent from the client on the terms and conditions must be obtained from client. RA are required to keep records of the terms and conditions of research services disclosed to the clients and the consent of the client obtained thereon and are also required to maintain records of all communication including emails, call recordings etc.
4. The term “capital adequacy” has been replaced with “deposit,” which research
analysts must maintain with a scheduled bank to cover dues arising from arbitration or conciliation proceedings. The deposit has to be maintained with a scheduled bank, marked as lien in favour of BSE Ltd.
5. Client level segregation of research services and distribution activities is being mandated in the new Regulation wherein individual RA along with his family cannot provide distribution services to the same clients, whereas anon-individual RA can provide by properly segregating the activities though a separate division.
Further, Family has been defined as under
❖ Research Analyst’s Family: Includes the individual, their spouse, children, and parents.
❖ Client’s Family: Includes the client, their dependent spouse, children, and parents.
6. SEBI has added a definition of principal officer. A principal officer is required only in case of non-individual RAs.
The principal officer shall mean the managing director or designated director or managing partner or executive chairman of the board or equivalent management body. In partnership firms, one of the partners shall fulfil the qualification criteria of principal officer or it shall apply for registration as LLP/ Body Corporate within prescribed time limit.
7. Qualification criteria has been relaxed as now a person having graduate degree with valid NISM Series XV certificate can become a Research Analyst.
8. Non-individual research analysts must appoint a compliance officer or an independent professional (such as a member of ICAI or ICSI) to monitor compliance with SEBI regulations.
9. “Persons associated with research services” is being defined in the new Regulation and all client-facing personnel are being covered in the said definition with an exception for the employees engaged in clerical or administrative work. It must be noted that they must comply with qualification requirement of RA.
10. Research Analysts can now recommend model portfolio. The consultation paper has recommended the compliance requirements for providing model portfolio services to clients. Since the amended Regulation has not prescribed the compliance requirements, we can expect guidelines on the same.
11. Any Research Analyst using Artificial Intelligence tools in providing research services shall disclose the same to its clients.
12. RA have to maintain a functional website containing such details as may be specified by SEBI.
13. An individual or partnership firm can now register as both investment adviser as well as research analyst.
