Sebi issues norms for stock exchange subsidiary to regulate investment advisors

Sebi had established the first set of rules governing investment advisors in 2013 and has progressively tightened regulations since then to combat mis-selling and fraudulent stock tip operators. It released a consultation paper on Self Regulatory Organisations (SROs) for intermediaries including investment advisors in April 2019. The consultation paper allowed either a body of intermediaries or a subsidiary of a stock exchange to perform this rule.

A circular released on Thursday has settled the matter in favour of an exchange subsidiary.

The finalization of a regulator for RIAs comes after a long legal battle that started in 2013 when Sebi had decided to appoint a company floated by industry body Association of Mutual Funds in India (Amfi) as an SRO for mutual fund distributors. The decision was challenged by the Financial Planning Supervisory Board (FPSB) in the Securities Appellate Tribunal (SAT). The appeal by FPSB had alleged that the selection process contravened rules that applied to SROs. The SAT, and later the Supreme Court, ruled in favour of the FPSB.

Following the ruling, Sebi submitted an application in November 2018 to the Supreme Court, which said that instead of inviting applications a company should be made an SRO based on its experience and capability. Then in April 2019, Sebi issued a discussion paper which forms the basis of exchanges acting as supervisors of investment advisors.