In this blog post, Shambhavi Bundela, a student at New Law College Bharati Vidyaneeth, Pune and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes corporate governance issues involved in the issuance of securities through the book-building process.
Introduction
In India, in order to offer investment advice one has to register as an investment adviser (RIA) with SEBI. Once they are registered, they shall act in a fiduciary capacity towards its clients. Till 2013 there were no clear regulations regarding an Investment Adviser and anybody would claim himself as an adviser. There was a need for a proper regulation and SEBI came out with IA Regulations 2013 in the interest of the investors.
Investment Adviser
Investment adviser is any person or group that makes investment recommendations or conducts securities analysis in return for a fee, they are also referred as a financial adviser. Investment advisers provide guidance to clients working as a professional within financial industry. Certain persons such as insurance agents, pension advisers, stock brokers, mutual fund distributors ,fund manager, advocate, law firm etc. are exempted. Clients are the customers using the investment adviser’s services.
Under the Regulation of 2013 “Investment adviser” means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called.
“Investment advice” means advice relating to investment in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral any other means. Provided any advice given through newspaper, magazines, any electronic medium shall not be considered as investment advice.
Under the Investment Adviser Regulations, no person shall act as an investment adviser unless he has obtained a certificate of registration from the Securities and Exchange Board of India (SEBI), established under The Securities and Exchange board of India Act, 1992. If any person found to be engaged in providing investment advisory services without getting registered with SEBI, appropriate actions as deemed fit may be initiated under the Act of 1992.
Qualification and Certification Requirement
An individual shall have the following minimum qualifications:
- Professional qualification or post-graduate degree or diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or
- Graduate in any discipline with at least 5 year experience relating to advice in financial products or securities or funds Or assets or portfolio management.
He shall have a certification on financial planning or fund or asset or portfolios from
(a)National Institute of Security Markets (NISM),
(b) Or any other organization including Financial Planning Standards Board India (FPSB) accredited by NISM
In simple words, a post-graduate in finance related topics or graduate in any discipline with five years experience in financial sector can pass the following 2 examinations Level-1 and Level-2 by NISM and apply to SEBI for registration as an Investment Adviser.
The SEBI (Investment Advisers) Regulation, 2013 (“IA Regulations”) notified on January 2013 which regulates conditions for registration, certification, capital adequacy, code of conducts, etc.
The list of SEBI registered advisers are available on SEBI website www.sebi.gov.in
The Regulation require the Investment Advisers – banks, non-banking financial companies ( NBFCs ) and corporates to segregate their investment advisory services
Procedure for Registration
To register as an Investment adviser an Application shall be made in Form A as under First Schedule of IA Regulations with supporting documents and Application fees of Rs. 5,000/- by way of bank draft. The procedure is also given on SEBI website. The applicant receive a reply from SEBI within a month.
To make it more convenient for genuine entities, the application shall be filed with the Head office (HO) or the concerned Regional Office or Local office of SEBI under the Jurisdiction where the applicant is located. SEBI shall approve the application on being satisfied and shall grant certificate of registration.
The certificate of registration remains valid for five years and has to be applied for renewal three months before the expiry.
Body Corporates
Under the regulation, body corporates shall have the meaning assigned to it as under the Companies Act, 1956.
Section 2 provides that body corporate includes a company incorporated outside India, but does not include- (i) a co-operative society registered under any law relating to co-operative societies and (ii) any other body corporate (not being a company as defined in this act).
In case of a body corporate which proposes to undertake investment advisory services in addition to its existing activities the application has to be made through a separately identified division. But, if the body corporate proposes to undertake only advisory activities no separate division is to be identified. The SEBI board may recognize any body corporate for the purpose of regulating investment advisers and at the time of recognition of such body corporate delegate administration and supervision of investment advisers to such body on such terms and condition as specified.
The Board also has the power to specify that no person shall act as Investment Adviser unless he is a member of a recognized body corporate in such events, provisions of this regulation shall apply mutatis mutandis.
Investment Advisers which are body corporate shall have a net worth of not less than twenty five lakh rupees, net worth means the aggregate value of paid up capital plus free reserved reduced by the aggregate value of accumulated losses. The Registration or Renewal fee for body corporate is INR 5,00,000/-.
An Investment Adviser which is a Body Corporate or a partnership firm is required to appoint a compliance officer who shall be responsible for monitoring the compliance by the Investment adviser in respect of the Act.
