Master Circular – IA

VI. MISCELLANEOUS

 8. Procedure for seeking prior approval for change in control^[1]

 8.1. Regulation 15(11) of the IA Regulations, IA shall obtain prior approval of SEBI in case of change in control.

8.2. To streamline the process of providing approval to the proposed change in control of IA (hereinafter referred as IA or applicant), it has been decided as under:

i. IA shall make an online application to SEBI for prior approval through the SEBI Intermediary Portal (‘SI Portal’) (https://siportal.sebi.gov.in).

ii. The online application in SI portal shall be accompanied by the following information/ declaration/ undertaking about itself, the acquirer(s)/ the person(s) who shall have the control and the directors/ partners of the acquirer(s)/ the person(s) who shall have the control:

a. Current and proposed shareholding pattern of the applicant

b. Whether any application was made in the past to SEBI seeking registration in any capacity but was not granted? If yes, details thereof.

c. Whether any action has been initiated/ taken under Securities Contracts (Regulation) Act, 1956 (SCRA)/ Securities and Exchange Board of India Act, 1992 (SEBI Act) or rules and regulations made thereunder? If yes, the status thereof along with the corrective action taken to avoid such violations in the future. The acquirer/ the person who shall have the control shall also confirm that it shall honour all past liabilities/ obligations of the applicant, if any.

d. Whether any investor complaint is pending? If yes, steps taken and confirmation that the acquirer/ the person who shall have the control shall resolve the same.

e. Details of litigation(s), if any.

f. Confirmation that all the fees due to SEBI have been paid.

g. Declaration cum undertaking of the applicant and the acquirer/ the person who shall have the control (in the format specified at Annexure E), duly stamped and signed by their authorized signatories that:

i. there will not be any change in the Board of Directors of incumbent, till the time prior approval is granted;

ii. pursuant to grant of prior approval by SEBI, the incumbent shall inform all the existing investors/ clients about the proposed change prior to effecting the same, in order to enable them to take informed decision regarding their continuance or otherwise with the new management; and

iii. the ‘fit and proper person’ criteria as specified in Schedule II of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 are complied with.

h. In case the incumbent is a registered stock broker, clearing member, depository participant, in addition to the above, it shall obtain approval /NOC from all the stock exchanges/clearing corporations/depositories, where the incumbent is a member/depository participant and submit self-attested copy of the same to SEBI.

iii. The prior approval granted by SEBI shall be valid for a period of six months from the date of such approval within which the applicant shall file application for fresh registration pursuant to change in control.

8.3. To streamline the process of providing approval to the proposed change in control of an IA in matters which involve scheme(s) of arrangement which needs sanction of the National Company Law Tribunal (“NCLT”) in terms of the provisions of the Companies Act, 2013, the following has been decided:

i. The application seeking approval for the proposed change in control of the IA shall be filed with SEBI prior to filing the application with NCLT.

ii. Upon being satisfied with compliance of the applicable regulatory requirements, an in-principle approval will be granted by SEBI;

iii. The validity of such in-principle approval shall be three months from the date issuance, within which the relevant application shall be made to NCLT.

iv. Within 15 days from the date of order of NCLT, the IA shall submit an online application in terms of clause 8.2 along with the following documents to SEBI for final approval:

1. Copy of the NCLT Order approving the scheme;
2. Copy of the approved scheme;
3. Statement explaining modifications, if any, in the approved scheme vis-à-vis the draft scheme and the reasons for the same; and
4. Details of compliance with the conditions/ observations, if any, mentioned in the in-principle approval provided by SEBI.

9. Advertisement code and usage of brand name/trade name^[2]

 9.1. Investment Advisers shall ensure compliance with the advertisement code as prescribed below:

a. Forms of communication:

i. Advertisement shall include all forms of communications, issued by or on behalf of IA, that may influence investment decisions of any investor or prospective investor.

ii. The forms of communications, to which the advertisement code shall be applicable, shall include pamphlets, circulars, brochures, notices, research reports or any other literature, document, information or material published, or designed for use in any publication or displays (such as newspaper, magazine, sign boards/hoardings at any location), in any electronic, wired or wireless communication (such as electronic mail, text messaging, messaging platforms, social media platforms, radio, telephone, or in any other form over the internet) or over any other audio-visual form of communication (such as television, tape recording, video tape recordings, motion pictures) or in any other manner whatsoever.

b. Information/disclosures in the advertisement:

The information/disclosures that the advertisement shall contain, include the following-

i. Name of the IA/RA as registered with SEBI, registered office address, SEBI Registration No., logo/brand name/trade name of IA, and CIN of the IA, if applicable.

ii. Information which is accurate, true and complete in unambiguous and concise language.

iii. Standard warning in legible fonts (minimum 10 font size) which states “Investment in securities market are subject to market risks. Read all the related documents carefully before investing”. No addition or deletion of words shall be made to/from the standard warning.

iv. In audio-visual media based advertisements, the standard warning in visual media based advertisement and accompanying voice over reiteration shall be audible in a clear and understandable manner.

For example, in standard warning both the visual and the voice over reiteration containing 20 words running for at least 10 seconds may be considered as clear and understandable.

v. Whenever the advertisement is being issued in a language other than English, it will be ensured that the standard warning is accurately translated in the language of the advertisement.

vi. In case the mode of advertisement is SMS/Message/Pop-up, social media etc. and the details such as full name, logo/brand name, full registered office address, SEBI registration number, membership number of a SEBI recognized supervisory body and standard disclaimer are not mentioned, then official website hyperlink should be provided in such SMS/Message/Pop-up, etc. and the website must contain all such details.

vii. In case any specific security/ securities are displayed in the advertisement as examples, disclaimer that “The securities quoted are for illustration only and are not recommendatory” should be mentioned.

viii. Advertisements and communications/correspondences with clients shall include the disclaimer that “Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the IA or provide any assurance of returns to investors.”

c. Prohibitions in the advertisement: 

The advertisement shall not contain:

i. Anything which is prohibited for publication under the law.

ii. Statements which are false, misleading, biased or deceptive, based on assumptions or projections.

iii. Any misleading or deceptive testimonials.

iv. Statements which, directly or by implication or by omission, may mislead the investor.

v. Any statement likely to be misunderstood or likely to disguise the significance of the same or any other statement contained in the advertisement.

vi. Any statement designed to exploit the lack of experience or knowledge of the investors.

vii. Any statement that is exaggerated or is inconsistent with or unrelated to the nature and risk and return profile of the product.

viii. Extensive use of technical or legal terminology or complex language and the inclusion of excessive details which may distract the investors.

ix. Reference to any report, analysis, or service as free, unless it actually is free and without condition or obligation.

x. Any promise or guarantee of assured or risk free return to the investors.

The advertisement shall not imply any assured returns or minimum returns or target return or percentage accuracy or service provision till achievement of target returns or any other nomenclature that gives the impression to the client that the investment advice is riskfree and/or not susceptible to market risks and/or that it can generate returns with any level of assurance. 

xi. Any statement which directly or indirectly discredits other advertisements or intermediaries or makes unfair comparisons or ascribes any qualitative advantage over other intermediaries directly or indirectly.

xii. Reference to past performance of the IA.

xiii. Superlative terms such as “Best”, “No. 1”, Top Adviser, “Leading”, “One of the best amongst market leaders”, etc. so as to provide any endorsement of quality or standing of the IA. However, factual details of awards received by the IA from independent organizations may be included.

xiv. Advertisements shall not include SEBI Logo.

d. Other compliances/requirements:

i. Prior approval for the advertisement/material shall be obtained from SEBI recognized supervisory body (BSE Administration & Supervision Ltd. (BASL)) before issue. 

ii. In the event of suspension of any IA by SEBI and/or by SEBI recognized supervisory body, the IA so suspended shall not issue any advertisement either singly or jointly with any other IA, during the period of suspension.

iii. The IA/RA shall not engage in games, leagues, schemes, competitions etc. which may involve distribution of prize monies, medals, gifts, etc.

iv. These norms shall be applicable to any other investment/research/consultancy agency associated with the IA concerned and issuing advertisement wherein the IA has been named in the advertisement.

v. Copy of the advertisement shall be retained by IA for a period of five years in terms of Regulation 19(2) of the IA Regulations.

vi. Any additional guidelines as may be specified by SEBI or SEBI recognized supervisory body from time to time.

9.2. In order to ensure the transparency in usage of brand name/trade name/logo, IA/RA shall ensure that:

i. The information such as name of the IA as registered with SEBI, its logo, its registration number and its complete address with telephone numbers shall be prominently displayed on portal/web site, if any, notice board, display boards, advertisements, publications, know your client forms and client agreements.

ii. The information such as name of the IA as registered with SEBI, its logo, its registration number, its complete address with telephone numbers, the name of  the  compliance  officer,  his  telephone  number  and  email  address,  the  name, telephone  number  and  e-mail  address of  the  grievance officer or the grievance redressal cell shall be displayed prominently in statements or reports or any other form of correspondence with the client.

iii. Disclaimer that “Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the IA or provide any assurance of returns to investors” shall be mentioned on portal/web site, if any, notice board, display boards, advertisements, publications, know your client forms, client agreements, statements or reports or any other form of correspondence with the client.

iv. SEBI logo shall not be used by IA. 

9.3. The aforesaid provisions on advertisement code and usage of brand name/trade name became applicable with effect from May 01, 2023.

10. Facilitating transaction in Mutual Fund schemes through the Stock Exchange Infrastructure^[3]

Registered IAs are allowed to use infrastructure of the recognized stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund/ Asset Management Companies on behalf of their clients, including direct plans. 

11. Unauthenticated news circulated by SEBI Registered Market Intermediaries through various modes of communication^[4]

 IAs are directed that:

 a. Proper internal code of conduct and controls should be put in place.

b. Employees/temporary staff/voluntary workers etc. employed/working in the Offices of market intermediaries do not encourage or circulate rumours or unverified information obtained from client, industry, any trade or any other sources without verification.

c. Access to Blogs/ Chat forums/Messenger sites etc. should either be restricted under supervision or access should not be allowed.

d. Logs for any usage of such Blogs/Chat forums/Messenger sites (called by any nomenclature) shall be treated as records and the same should be maintained as specified by the IA Regulations.

e. Employees should be directed that any market related news received by them either in their official mail/personal mail/blog or in any other manner, should be forwarded only after the same has been seen and approved by the IA’s Compliance Officer. If an employee fails to do so, he/she shall be deemed to have violated the various provisions contained in SEBI Act/Rules/Regulations etc. and shall be liable for action. The Compliance Officer shall also be held liable for breach of duty in this regard^[5].

12. Guidelines on Outsourcing of Activities by Intermediaries^[6]

 12.1. SEBI Regulations for various intermediaries require that they shall render at all times high standards of service and exercise due diligence and ensure proper care in their operations.

12.2. It has been observed that often the intermediaries resort to outsourcing with a view to reduce costs, and at times, for strategic reasons.

12.3. Outsourcing may be defined as the use of one or more than one third party – either within or outside the group – by a registered intermediary to perform the activities associated with services which the intermediary offers.

12.4. Principles for Outsourcing

 The risks associated with outsourcing may be operational risk, reputational risk, legal risk, country risk, strategic risk, exit-strategy risk, counter party risk, concentration and systemic risk. The principles for outsourcing are given in Annexure F.

12.5. Activities that shall not be Outsourced:

The intermediaries desirous of outsourcing their activities shall not, however, outsource their core business activities and compliance functions. An example of core business activity may be – execution of orders and monitoring of trading activities of clients in case of stock brokers. Regarding Know Your Client (KYC) requirements, the intermediaries shall comply with the provisions of SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011 and Guidelines issued thereunder from time to time.

12.6. Other Obligations:

Reporting to Financial Intelligence Unit (FIU) – The intermediaries shall be responsible for reporting of any suspicious transactions / reports to FIU or any other competent authority in respect of activities carried out by the third parties.

13. Framework for Regulatory Sandbox^[7]

13.1 The Objective of Regulatory Sandbox is to grant certain facilities and flexibilities to the entities regulated by SEBI so that they can experiment with FinTech solutions in a live environment and on limited set of real users for a limited time frame.

 13.2 The guidelines pertaining to the functioning of the Regulatory Sandbox are available at the link below: 

https://www.sebi.gov.in/legal/circulars/jun-2021/revised-framework-forregulatory-sandbox_50521.html and 

https://www.sebi.gov.in/legal/circulars/nov-2021/framework-for-regulatorysandbox_53982.html

14. General Guidelines for dealing with Conflicts of Interest of intermediaries and their Associated Persons in Securities Market.^[8]

 14.1. All intermediaries are presently governed by the provisions for avoidance of conflict of interest as mandated in the regulations read with relevant circulars issued from time to time by SEBI. On the lines of Principle 8 of the International Organisation of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulations, it has been decided to put in place comprehensive guidelines to collectively cover such intermediaries, for elimination of their conflict of interest, as detailed hereunder.

14.2. Intermediaries shall adhere to these guidelines for avoiding or dealing with or managing conflict of interest. They shall be responsible for educating their associated persons for compliance of these guidelines.

14.3. For the purpose of these guidelines “associated persons” shall have the same meaning as defined in Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007.

14.4. Intermediaries and their associated persons shall,

a. lay down, with active involvement of senior management, policies and internal procedures to identify and avoid or to deal or manage actual or potential conflict of interest, develop an internal code of conduct governing operations and formulate standards of appropriate conduct in the performance of their activities, and ensure to communicate such policies, procedures and code to all concerned;

b. at all times maintain high standards of integrity in the conduct of their business;

c. ensure fair treatment of their clients and not discriminate amongst them;

d. ensure that their personal interest does not, at any time conflict with their duty to their clients and client’s interest always takes primacy in their advice, investment decisions and transactions;

e. make appropriate disclosure to the clients of possible source or potential areas of conflict of interest which would impair their ability to render fair, objective and unbiased services;

f. endeavor to reduce opportunities for conflict through prescriptive measures such as through information barriers to block or hinder the flow of information from one department/ unit to another, etc.;

g. place appropriate restrictions on transactions in securities while handling a mandate of issuer or client in respect of such security so as to avoid any conflict;

h. not deal in securities while in possession of material non published information;

i. not to communicate the material non published information while dealing in securities on behalf of others;

j. not in any way contribute to manipulate the demand for or supply of securities in the market or to influence prices of securities;

k. not have an incentive structure that encourages sale of products not suiting the risk profile of their clients;

l. not share information received from clients or pertaining to them, obtained as a result of their dealings, for their personal interest;

14.5 The Boards of intermediaries shall put in place systems for implementation of the aforementioned guidelines and provide necessary guidance enabling identification, elimination or management of conflict of interest situations. The Boards shall review the compliance of the above guidelines periodically.

14.6 The said guidelines shall be in addition to the provisions, if any, contained in respective regulations/ circulars issued by the Board from time to time regarding dealing with conflict of interest, in respect of intermediaries.

15. Approach to securities market data access and terms of usage of data provided by data sources in Indian securities market^[9]

15.1. IAs are advised to make note of the following:

“As far as the data provided by various data sources in Indian securities markets pursuant to regulatory mandates for reporting and disclosure in public domain are concerned, such data should be made available to users, ‘free of charge’ both for ‘viewing’ the data as also for download in the format as specified by regulatory mandate for reporting, as well as their usage for the value addition purposes.”   

15.2. Further, apart from the data made available free of cost, data which is chargeable should be appropriately identified as such in public domain.

16. Reporting Requirements under Foreign Account Tax Compliance Act^[10]

16.1. India joined the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information on June 03, 2015. In terms of the MCAA, all countries which are signatory to MCAA, are obliged to exchange a wide range of financial information after collecting the same from financial institutions in their country / jurisdiction.

16.2. On July 09, 2015, the Governments of India and United States of America (USA) signed an agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA) in India. The USA enacted FATCA in 2010 to obtain information on accounts held by US taxpayers in other countries. As per the aforesaid agreement, foreign financial institutions (FFIs) in India will be required to report tax information about US account holders / taxpayers directly to the Indian Government which will, in turn, relay that information to the U.S. Internal Revenue Service (IRS).

16.3. For implementation of the MCAA and agreement with USA, the Government of India has made necessary legislative changes to Section 285BA of the Income Tax Act, 1961. Further, the Government of India has notified Rules 114F to 114H (herein after referred to as “the Rules”) under the Income Tax Rules, 1962 and form No. 61B for furnishing of statement of reportable account specified in the Rules. The Rule is available at 

http://www.incometaxindia.gov.in/communications/notification/notification%20no.%2062%20dated%2007-08-2015.pdf

16.4. A “Guidance Note on implementation of Reporting Requirements under Rules 114F to 114H of the Income Tax Rules” as issued by the Department of Revenue, Ministry of Finance vide F.No.500/137/2011-FTTR-III dated August 31, 2015 is available at

http://www.incometaxindia.gov.in/communications/notification/guidance_notes_on_implementation_31_08_2015.pdf, for information and necessary action.

16.5. IAs shall take necessary steps to ensure compliance with the requirements specified in the aforesaid Rules after carrying out necessary due diligence.

17. Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) / Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed there under

IAs are advised to refer to SEBI’s Master Circular issued on February 03, 2023 with respect to ‘Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed there under’ available at the following link:

https://www.sebi.gov.in/legal/master-circulars/feb-2023/guidelines-on-antimoney-laundering-aml-standards-and-combating-the-financing-of-terrorism-cftobligations-of-securities-market-intermediaries-under-the-prevention-of-moneylaundering-act-2002-a-_67833.html

[1] Reference: Circular No. SEBI/HO/MIRSD/ MIRSD-PoD-2/P/CIR/2022/163 dated November 28, 2022

[2] Reference: Circular Nos. SEBI/HO/MIRSD/ MIRSD-PoD-2/P/CIR/2023/51 dated April 05, 2023 and

SEBI/HO/MIRSD/ MIRSD-PoD-2/P/CIR/2023/52 dated April 06, 2023

[3] Reference: Circular No. SEBI/HO/MRD/DSA/CIR/P/2016/113 dated October 19, 2016

[4] Reference: Circular No. CIR/ISD/1/2011 dated March 23, 2011 

[5] Circular CIR/ISD/2/2011 dated March 24, 2011.

[6] Circular CIR/MIRSD/24/2011 dated December 15, 2011.

[7] Reference:  Circular No. SEBI/HO/ITD/ITD/CIR/P/2021/575 dated June 14, 2021 and

SEBI/HO/MIRSD/MIRSD_IT/P/CIR/2021/0000000658 dated November 16, 2021

[8] Reference: Circular CIR/MIRSD/5/2013 dated August 27, 2013.

[9] Reference: Circular SEBI/HO/DEPA-III/DEPA-III_SSU/P/CIR/2022/25 dated Feb 25,2022

[10] Reference: Circular CIR/MIRSD/2/2015 dated August 26, 2015 and Circular CIR/MIRSD/3/2015 dated September 10, 2015.

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