INSITE - India- Jan 2025

SEBI UPDATES REGULATORY FRAMEWORK FOR INVESTMENT ADVISERS

Summary: The Securities and Exchange Board of India (SEBI) has revised the regulatory framework for Investment Advisers (IAs), effective December 16, 2024. Key changes include new deposit requirements, provisions for part-time IAs, and dual registration for research analysts as IAs.

In Detail: SEBI has announced key updates to its regulatory framework for IAs, which will come into effect on December 16, 2024. These changes aim to enhance compliance and improve transparency within industry.

Key Updates:

1. Deposit Requirements: New deposit rules will be based on the number of clients an IA serves, ensuring that the scale of operations is matched with financial security.

2. Part-Time IAs & Dual Registration: Provisions have been introduced for part-time IAs and allow research analysts to also register as IAs under certain conditions.

3. Non-Individual IAs: Non-individual IAs are now required to appoint compliance officers and meet specified qualification standards to ensure effective governance.

4. Fee Structure Changes: There is greater flexibility in how IAs can charge clients, alongside revised limits on fixed fees.

5. AI and Non-SEBI Products Disclosure: IAs using artificial intelligence or offering non-SEBI-regulated products must adhere to new disclosure requirements and segregate client funds more strictly.

6. Enhanced Transparency: IAs must maintain enhanced records, undergo audits, and ensure their websites are functional to align with updated transparency standards. The agreements with clients must also include clear terms.

   
   

Immediate Implementation

These provisions come into effect immediately, though compliance deadlines may vary by specific clause. The revisions reflect SEBI’s commitment to strengthening the investment advisory ecosystem, ensuring greater accountability and transparency for both IAs and their clients.

Key Links: SEBI | Guidelines for Investment Advisers

TIMELINE FOR REVIEW OF ESG RATING PURSUANT TO OCCURRENCE OF ‘MATERIAL EVENTS

Summary: The Securities and Exchange Board of India (SEBI) has issued a circular extending the timeline for ESG Rating Providers (ERPs) to review ratings after the publication of Business Responsibility and Sustainability Reporting (BRSR). Originally, ERPs had 10 days to review ratings following material developments, including BRSR publication. Due to operational challenges, SEBI has now extended the review period for BRSR updates to 45 days.

In Detail: SEBI has announced a revision to the timeline for ERPs to review and update the ESG ratings following the publication of the BRSR.

Key Changes:

1. Extended Review Period for BRSR Updates: Previously, ERPs were required to review ESG ratings within 10 days of any material developments, including the publication of BRSR. In response to operational challenges faced by ERPs in meeting this short timeline, SEBI has now extended the review period for BRSR-related updates to 45 days.

   
   

2. Ongoing Requirement for Other Material Events: Despite the extension for BRSR-related updates, ERPs are still required to review ratings for other material events within the original 10-day timeline.

   
   

These changes are designed to provide ESG Rating Providers with more time to complete their reviews, ensuring better accuracy and operational efficiency.

Effective Immediately

The updated framework is effective immediately and aims to streamline the review process while maintaining the integrity and timeliness of ESG ratings.

Key Links:  SEBI | Timeline for Review of ESG Rating pursuant to occurrence of ‘Material Events’

SEBI INTRODUCES PROCEDURE FOR WAIVER OR REDUCTION OF INTEREST ON PENALTIES

Summary: The Securities and Exchange Board of India (SEBI) has introduced a process allowing defaulters to request a waiver or reduction of interest on penalties related to recovery proceedings for non-payment. SEBI requires the application to be submitted to the relevant recovery officer, along with documentation supporting the fulfillment of the three criteria outlined in Section 220(2A) of the Income Tax Act, 1961.

In Detail: SEBI has issued a circular outlining the procedure for seeking a waiver or reduction of interest in cases where recovery proceedings are initiated due to failure to pay penalties. This new framework aligns with the SEBI Act, the Securities Contracts (Regulation) Act, the Depositories Act, and mirrors provisions in the Income Tax Act related to recovery processes.

Key Highlights:

1. Authority to Waive or Reduce Interest: SEBI has delegated the authority to approve waivers or reductions of interest to a panel of its Executive Directors or Whole-time Members, depending on the amount involved. However, this does not apply to cases concerning interest on unpaid fees or disgorgement orders.

   
   

2. Application Process: Defaulters seeking a waiver or reduction of interest must submit an application to the recovery officer. Section 220 (2A) allows for the waiver or reduction of interest under specific conditions, which include:

·       Payment of the amount causing genuine hardship to the applicant.

·       The default occurred due to circumstances beyond the applicant's control.

·       The applicant has cooperated in any related inquiries.

The application must include supporting documentation to demonstrate the above conditions.

3. Timeline for Decision: Applications can only be made after the principal amount has been fully paid. SEBI will make a decision within 12 months from receiving a complete application.

   
   

4. Detailed Guidelines: The circular includes specific guidelines on how to submit applications, emphasizing that incomplete applications will be returned.

   
   

This updated procedure aims to streamline the process for defaulters, offering relief in certain circumstances, while ensuring better compliance and transparency in recovery proceedings.

Key Links: SEBI | Procedure for seeking waiver or reduction of interest in respect of recovery proceedings initiated for failure to pay penalty.