What's Brewing

After duly notifying the Securities and Exchange Board of India (Investment Advisors) (Second Amendment) Regulations, 2024 and (Research Analysts) (Third Amendment) Regulations, 2024 both dated 16th December 2024 [Amendments], SEBI issued detailed guidelines [‘Guidelines’] on 8th January 2025 for compliance by all Research Analysts [‘RA’s] and Investment Advisers [‘IA’s] who are already registered with SEBI or seek to register with SEBI.

Among the various guidelines issued, the following are the salient ones to be noted:

Qualifications of RAs – SEBI Regulations notified in 2014 already stipulate that any RA, whether working in individual capacity or whether employed by a financial research company/firm, shall have the following minimum qualifications:

1. Post Graduate degree or diploma from a UGC-recognised University or a govt recognised Institute in finance/commerce/business management/economics or any stock market related curriculum.
2. Certification as Research Analyst from National Institute of Securities Markets (NISM), which is an educational body formed as a trust by SEBI, that requires an NISM-conducted exam to be passed. 
3. Individual RAs or those employed by research companies/firms shall obtain NISM certification within 2 years from date of notification of SEBI Regulations.

As per the Guidelines, for individuals RAs and employees of RA companies/firms already existing at the time of notification of the Guidelines, the following qualifications shall apply:

1. Post Graduate degree or diploma from Universities/Institutes is not required.
2. NISM Certification as RA is essential.
3. Tangible assets of Rs. 1.0 lakh in the name of individual or employee of RA company/firm and net worth of Rs. 25.0 lakhs in the name of RA company/firm, respectively, are mandatory.

Deposit Requirement:  –  Table of Deposits given below indicates the minimum amount to be maintained in a scheduled bank in India by any individual RA or RA company/firm, in favour of ‘Research Analyst Administration & Supervisory Body’(RAASB), which in essence is a stock exchange approved by SEBI, latest by 30th April 2025:

{The above Deposit requirement also applies to all Investment Advisers [IAs]; deposit to be maintained in favour of ‘Investment Adviser Administration & Supervisory Board’ (IAASB)}

Dual Registration  –  As per the Guidelines, dual registration as RA and IA simultaneously is permissible under the following conditions:

1. Registered RA (individual or company/firm) can get IA Certification against compliance with all provisions of Securities and Exchange Board of India (Investment Advisers) (Second Amendment) Regulations, 2024 of 16th December 2024.
2. Registered IA (individual or company/firm) can get RA Certification against compliance with all provisions of Securities and Exchange Board of India (Research Analysts) (Third Amendment) Regulations, 2024 of 16th December 2024.
3. Dual RA/IA shall furnish an undertaking to SEBI that its activities as RA and IA shall be completely separated from each other at all times.

Part-time Registration  –  Part-time RA or IA is an individual or company/firm who is also involved in activities not related to securities or financial instruments.

1. Those eligible to register as part-time RA/IA include: Chartered Accountants, Cost Accountants, Company Secretaries, Insurance Agents, Teachers, Advocates, Doctors, Architects. 
2. Those not eligible include dealers of: real estate, gold bullion, cryptocurrency. 
3. Compliance with all provisions of SEBI Regulations is mandatory for part-time RAs/IAs, including the undertaking to keep RA and IA activities completely separated from each other.

Principal and Compliance Officer – Following are the guidelines stipulated:

1. RA/IA Partnership firms shall have a designated Principal Officer who will be responsible for all its activities concerning SEBI. 
2. RA/IA Partnership firms which do not have RAs/IAs with the qualifications as per Guidelines shall register themselves as Limited Liability Partnership (LLP).
3. RA/IA Partnership firms can appoint as its Compliance Officer an independent CA,CMA or CS, provided he has an NISM Certification as RA/IA.

Artificial Intelligence (AI) in RA/IA Services – RAs/IAs deploying AI tools in their activities shall:

1. Assume full and sole responsibility for the integrity, confidentiality and security of clients’ data.
2. Provide complete disclosure to clients on the extent of use of AI, at all stages of transactions.
3. Ensure total compliance with all other laws pertaining to the usage of AI.

Advisory and Distribution Activities – To protect clients’ interests, the Guidelines stipulate the following:

1. Clients are prohibited from availing advisory and distribution services from the same service provider. In other words, an individual or company/firm can either provide RA/IA service or render distribution service to a client, he cannot perform both services to the same client.

KYC and Audit Requirements – The Guidelines stipulate the following:

1. KYC detail and records shall be maintained by RA/IA for all interactions with clients.
2. Annual audit shall be submitted to Research Analyst Administration and Supervisory Body ‘RAASB’  by RA/IA for all clients, as per Guidelines.

RA/IA Website – All RAs/IAs shall maintain a functional website that contains all relevant information, disclosures and KYC compliance for all clients, in compliance with RAASB and IAASB regulations.

The above guidelines have been introduced primarily to enhance investor protection, ensure transparency and to provide clarity on the deployment of Artificial Intelligence (AI) tools by those involved in financial research and investment advice.

For full text of the Bill:
https://www.sebi.gov.in/legal/circulars/jan-2025/guidelines-for-research-analysts_90634.html