SEBI notified the Investment Advisers Regulations in 2013, making it mandatory for entities providing investment advice for a consideration, to register under the Regulations. Regulation 4 grants exemption from registration to certain entities that provide investment advice to their clients, incidental to their primary activity. Despite such exemption, registered intermediaries are required to comply with the general obligations under the Regulations. Pursuant to the recent board meeting of SEBI where it had approved the issuance of a consultation paper proposing certain changes and clarifications in the IA Regulations, SEBI issued a consultation paper on October 7, 2016.
The paper, among other things, re-examines the exemptions granted under Regulation 4, mandating it for all financial planning service providers, including ‘wealth advisers’ and ‘independent financial advisers’ to register as IAs. Notably, SEBI also wants mutual fund distributors to register as IAs under the Regulations within a three year time frame. The paper states that distributors cannot provide incidental or basic advice regarding mutual fund products. Further, SEBI has proposed to restrict the offering of advisory services only through a separate subsidiary, as opposed to the existing framework, where it can be provided through a separate division or department. SEBI has also sought to define ‘investment products’ to mean “all financial instruments that are regulated by any financial sector regulator in India”. Further, SEBI has proposed to prohibit persons from providing trading tips and stock specific recommendations to the general public through SMS, email, or social networking media such as WhatsApp, Twitter.
While the consultation paper purports to establish uniform standards across all persons engaged in providing IA services, some of the proposals are contrary to existing regulatory norms, some others would amount to unreasonable restrictions on certain fundamental rights, while some others may pose more practical difficulties than cure them.