SEBI (Investment Advisers) Regulations

THE GAZETTE OF INDIA
EXTRAORDINARY
PART – III – SECTION 4
PUBLISHED BY AUTHORITY
NEW DELHI, JANUARY 21, 2013
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 21st January, 2013

SECURITIES AND EXCHANGE BOARD OF INDIA
(INVESTMENT ADVISERS) REGULATIONS, 2013

No. LAD-NRO/GN/2012-13/31/1778.-In exercise of the powers conferred by sub-section (1) of Section 30 read with clause (b) of sub-section (2) of Section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Securities and Exchange Board of India hereby, makes the following regulations, namely, —

CHAPTER I
PRELIMINARY
Short title and commencement.
1. (1) These regulations may be called the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013.

(2) These regulations shall come into force on the ninetieth day from the date of their publication in the Official Gazette.

Definitions.
2. (1) In these regulations, unless the context otherwise requires, the terms defined herein shall bear the meanings assigned to them below, and their cognate expressions shall be construed accordingly,-

(a) “Act” means the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(aa) “accreditation agency” shall have the same meaning as assigned to it in clause
(aa) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012;

(ab) “accredited investor” shall have the same meaning as assigned to it under clause (ab) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012;
ac) “assets under advice” shall mean the aggregate net asset value of securities for which the investment adviser has rendered investment advice irrespective of whether the implementation services are provided by investment adviser or concluded by the client directly or through other service providers;

(b) “Board” means the Securities and Exchange Board of India established under
section 3 of the Act;

(c) “body corporate” shall have the meaning assigned to it in or under sub¬section (11) of section 2 of the Companies Act, 2013 (18 of 2013);

(d) “certificate” means a certificate of registration granted under these regulations;

(e) “Change in control” –
(i) in case of a body corporate –
(A) if its shares are listed on any recognised stock exchange, shall be construed with reference to the definition of control in terms of regulations framed under clause (h) of sub-section (2) of section 11 of the Act;
(B) if its shares are not listed on any recognised stock exchange, shall be construed with reference to the definition of control as provided in sub-section (27) of Section 2 of the Companies Act, 2013 (18 of 2013);
(ii) in a case other than that of a body corporate, shall be construed as any change in its legal formation or ownership or change in controlling interest.

Explanation – For the purpose of sub-clause (ii), the expression “controlling interest” means an interest, direct or indirect, to the extent of not less than fifty percent of voting rights or interest;

(f) “company” means a company incorporated under the Companies Act, 1956 or Companies Act, 2013;

(g) “consideration” means any form of economic benefit including non-cash benefit, received or receivable for providing investment advice;

(ga) omitted

(gb) “family of client” shall include individual client, dependent spouse, dependent
children and dependent parents;

(gc) “family of an individual investment adviser” shall include individual investment adviser, spouse, children and parents;]

(h) “financial planning” shall include analysis of clients’ current financial situation, identification of their financial goals, and developing and recommending financial strategies to realise such goals;

(i) “firm” means a partnership firm registered under Indian Partnership Act, 1932 (9 of 1932);

(j) “form” means any of the forms set out in the First Schedule;

(k) “inspecting authority” means any one or more persons appointed by the Board to exercise powers conferred under regulation 23;

(l) “investment advice” means advice relating to investing in, purchasing, selling or
otherwise dealing in securities and advice on investment portfolio containing securities whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning:

Provided that investment advice given through newspaper, magazines, any electronic or broadcasting or telecommunications medium, which is widely available to the public shall not be considered as investment advice for the purpose of these regulations;
Provided further that trading calls shall not be considered as investment advice for purpose of these regulations.

(m) “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 a part-time investment adviser or] any person who holds out himself as an investment adviser, by whatever name called;

(n) “limited liability partnership” means a partnership formed and registered under The Limited Liability Partnership Act, 2008(6 of 2009);

(o) “NBFC” means a Non-Banking Financial Company regulated by Reserve Bank of India;

(p) “NISM” means the National Institute of Securities Market established by the Board;

(pa) “non-individual” means a body corporate including a limited liability partnership and a partnership firm;

(pb) “other business activity or employment” means such business activity or employment which is not related to securities and:
a. it does not involve handling or managing of money or funds of client or person; or
b. it is not related to providing advice or recommendation to any client or person in respect of any products or assets for investment purposes;]

(q) “partner” means partner of the firm or a limited liability partnership who renders
investment advice on behalf of the firm or limited liability partnership;

(qa) “part-time investment adviser” means an individual or a firm, who for consideration, is engaged in the business of providing investment advice and is also engaged in any other business activity or employment;

(r) “persons associated with investment advice” shall mean any member, partner, officer, director or employee or any sales staff of such investment adviser including any person occupying a similar status or performing a similar function irrespective of the nature of association with the investment adviser who is engaged in providing investment advisory services to the clients of the investment adviser;

Explanation. —
All client-facing persons such as sales staff, service relationship managers, client relationship managers, etc., by whatever name called shall be deemed to be persons associated with investment advice, but do not include persons who discharge clerical or office administrative functions where there is no client interface.

(s) “principal officer” in case of non-individual investment adviser engaged:
(i) solely in providing investment advisory services, shall mean the managing director or designated director or managing partner or executive chairman of the board or equivalent management body who is responsible for the overall function of the business and operations of non-individual investment adviser;
(ii) in the activities other than investment advisory services, through separate departments/divisions, may be the person at the management level who is a business head or unit head, responsible for the overall function of the business and operations related to investment advisory services:

Provided that in case of non-individual investment adviser being a partnership firm, one of the partners shall be designated as its principal officer:

Provided further that where no partner of firm registered as an investment adviser has minimum qualification and certification requirements provided in these regulations, it shall apply for registration as an investment adviser in the form of a limited liability partnership or a body corporate within such time as may be specified by the Board.

Explanation. — The provisions of sub clause (i) shall also be applicable to the principal officer of a non-individual entity registered both as an investment adviser and a research analyst but engaged in no other business activity.

(t) “research analyst” means any person registered under Securities and Exchange Board of India (Research Analysts) Regulations, 2014;

(u) “trading calls” shall have the same meaning as assigned to it under clause (zc) of sub-regulation (1) of regulation (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014.
(2) The words and expressions used and not defined in these regulations but defined in the Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the 20[Companies Act, 2013 (18 of 2013)], or any rules or regulations made thereunder shall have the same meanings respectively assigned to them in those Acts, rules or regulations made thereunder or any statutory modification or re-enactment thereto, as the case may be.

CHAPTER II
REGISTRATION OF INVESTMENT ADVISERS

Application for grant of certificate.
3. (1) On and from the commencement of these regulations, no person shall act as an investment adviser or hold itself out as an investment adviser unless he has obtained a certificate of registration from the Board under these regulations:

(1A) Notwithstanding anything contained in sub-regulation (1), any application made by a person prior to coming into force of these regulations containing such particulars or as near thereto as mentioned in Form A of First Schedule shall be treated as an application made in pursuance of sub-regulation (1) and dealt with accordingly;

(2) An application for grant of certificate of registration shall be made in Form A as specified in the First Schedule to these regulations and shall be accompanied by a non- refundable application fee to be paid in the manner specified in Second Schedule.

(3) On and from the date of commencement of these regulations, no person, while dealing in distribution of securities, shall use the nomenclature “Independent Financial Adviser or IFA or Wealth Adviser or any other similar name” unless registered with the Board as Investment Adviser.”

Exemption from registration.
4. The following persons shall not be required to seek registration under regulation 3 subject to the fulfillment of the conditions stipulated therefor, —

(a) Any person who gives general comments in good faith in regard to trends in the financial or securities market or the economic situation where such comments do not specify any particular securities or investment product;

(b) Any insurance agent or insurance broker who offers investment advice solely in insurance products and is registered with Insurance Regulatory and Development Authority for such activity;

(c) Any pension advisor who offers investment advice solely on pension products and is registered with Pension Fund Regulatory and Development Authority for such activity;

(d) Any distributor of mutual funds, who is a member of a self regulatory organisation recognised by the Board or is registered with an association of asset management companies of mutual funds, providing any investment advice to its clients incidental to its primary activity;

(e) Any advocate, solicitor or law firm, who provides investment advice to their clients, incidental to their legal practise;

(f) Any member of Institute of Chartered Accountants of India, Institute of Company Secretaries of India, Institute of Cost and Works Accountants of India, Actuarial Society of India or any other professional body as may be specified by the Board, who provides investment advice to their clients, incidental to his professional service;

(g) Any stock broker or sub-broker registered under SEBI (Stock Broker and Sub-Broker) Regulations, 1992, portfolio manager registered under SEBI (Portfolio Managers) Regulations, 1993 or merchant banker registered under SEBI (Merchant Bankers) Regulations, 1992, who provides any investment advice to its clients incidental to their primary activity:

Provided that such intermediaries shall comply with the general obligation(s) and responsibilities as specified in Chapter III of these regulations:

Provided further that existing portfolio manager offering only investment advisory services may apply for registration under these regulations after expiry of his current certificate of registration as a portfolio manager;

(h) Any fund manager, by whatever name called of a mutual fund, alternative investment fund or any other intermediary or entity registered with the Board;

(i) Any person who provides investment advice exclusively to clients based out of India:

Provided that persons providing investment advice to Non-Resident Indian or Person of Indian Origin shall fall within the purview of these regulations;

(j) Any principal officer, persons associated with advice and partner of an investment adviser which is registered under these regulations:
Provided that such principal officer, persons associated with advice] and partner shall comply with regulation 7 of these regulations;

(k) Any other person as may be specified by the Board.

Furnishing of further information, clarification and personal representation.
5. (1) The Board may require the applicant to furnish further information or clarification regarding matters relevant to investment advisory services for the purpose of consideration of the application filed under sub-regulation (2) of regulation 3.

(2) The applicant or his authorised representative, if so required, shall appear before the Board for personal representation.

Consideration of application and eligibility criteria.
6. For the purpose of the grant of certificate the Board shall take into account all matters which are relevant to the grant of certificate of registration and in particular the following, namely, —

(a) whether the applicant is an individual or a non-individual;

(b) in case the applicant is an individual, he and all persons associated with investment advice are appropriately qualified and certified as specified in regulation 7;

(c) in case the applicant is a body corporate, the principal officer and all persons associated with investment advice of the applicant are appropriately qualified and certified as specified in regulation 7;

(d) in case the applicant is a firm or a limited liability partnership, the principal officer and all persons associated with investment advice of the applicant are appropriately qualified and certified as specified in regulation 7;

(e) whether the applicant fulfills the deposit requirements as specified in regulation 8;

(f) whether the applicant, its partners, principal officer and persons associated with investment advice, if any, are fit and proper persons based on the criteria as specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;

(g) whether the applicant has the necessary infrastructure to effectively discharge the activities of an investment adviser;

(h) whether the applicant or any person directly or indirectly connected with the applicant has in the past been refused certificate by the Board and if so, the grounds for such refusal;

(i) whether any disciplinary action has been taken by the Board or any other regulatory authority against any person directly or indirectly connected to the applicant under the respective Act, rules or regulations made thereunder;

(j) In case a bank or an NBFC proposes to undertake investment advisory services, whether it has been permitted by Reserve Bank of India and the application is made through a subsidiary or separately identifiable department or division;

(k) In case any non-individual, other than a Bank or NBFC, which proposes to undertake investment advisory services, whether, the application is made through a separately identifiable department or division;

(l) In case an entity incorporated outside India undertakes to provide investment advisory services under these regulations, whether, it has set up a subsidiary in India and whether such subsidiary has made the application for registration;

(m) In case a foreign citizen proposes to undertake investment advisory services, whether the applicant has set up an office in India and proposes to undertake investment advisory services through such office;

(n) Whether the applicant is enlisted with a body or body corporate recognised under regulation 14:

Provided that the existing investment advisers shall be deemed to be enlisted with such a body or body corporate from the date of recognition of such body or body corporate:

Provided further that the applicant whose application is received before the date of recognition of the body or body corporate as provided under regulation 14 and who is granted the certificate after the date of recognition of such body or body corporate shall also be deemed to be enlisted with such a body or body corporate.

Qualification and certification requirement.
7. (1) An individual investment adviser or a principal officer of a non-individual
investment adviser registered as an investment adviser under these regulations, shall have the following minimum qualification, at all times –

(a) A professional qualification or graduate degree or post-graduate degree or post graduate diploma (minimum two years in duration) in finance, accountancy,
business management, commerce, economics, capital market, banking, insurance or actuarial science or other financial services as may be specified from a university or an institution recognized by the Central Government or any State Government or a recognised foreign university or institution or association or a professional qualification by completing a Post Graduate Program in the Securities Market (Investment Advisory) from NISM of a duration not less than one year or a professional qualification by obtaining a CFA Charter from the CFA Institute;

(b) [***]

(c) Persons associated with investment advice shall, at all times, have a minimum qualification of graduate degree in any discipline from a university or institution recognized by the Central Government or any State Government or a recognized foreign university or institution:

Provided that the investment advisers registered under these regulations as on the date of commencement of these regulations shall ensure that the individual investment adviser or principal officer of a non-individual investment adviser registered under these regulations and persons associated with investment advice shall comply with the qualification and experience requirements within such time as may be specified by the Board:

Provided further that the requirements at clauses (a) shall not apply to such existing individual investment advisers as may be specified by the Board.

(2) An individual investment adviser or principal officer of a non-individual investment adviser, registered under these regulations, persons associated with investment advice, and in case of investment adviser being a partnership firm, the partners thereof who are engaged in providing investment advice, shall have at all times relevant NISM certification as specified by the Board from time to time:
Provided that a fresh relevant NISM certification as specified by the Board from time to time shall be obtained before expiry of the validity of the existing certification to ensure continuity in compliance with certification requirements.

Deposit.
8. (1) An investment adviser shall maintain a deposit of such sum, as specified by the
Board from time to time.

(2) The deposit shall be maintained with a scheduled bank marked as lien in favor of a body or body corporate recognized by the Board for the purpose of administration and supervision of investment advisers in accordance with regulation 14 of these regulations:

Provided that such deposit shall be available for utilization in case the investment adviser fails to pay dues emanating out of arbitration and conciliation proceedings, if any, under the Online Dispute Resolution Mechanism or such other mechanism as may be specified by the Board.

Grant of certificate of registration.
9. The Board on being satisfied that the applicant complies with the requirements specified in regulation 6 shall send intimation to the applicant and on receipt of the payment of registration fees as specified in Second Schedule, grant certificate of registration in Form B [to an investment adviser or in Form C to a part-time investment adviser, as the case may be, under First Schedule, subject to such terms and conditions as the Board may deem fit and appropriate: Provided that an individual or partnership firm registered as a research analyst may be granted certificate of registration as an investment adviser, subject to such terms and conditions as the Board may deem fit and appropriate.
Period of validity of certificate.

10. The certificate of registration granted under regulation 9 shall be valid till it is suspended or cancelled by the Board.

Renewal of certificate.
11. The investment adviser which has already been granted certificate of registration by the Board, prior to the commencement of the Securities and Exchange Board of India (Change in Conditions of Registration of Certain Intermediaries) (Amendment) Regulations, 2016 shall be deemed to have been granted a certificate of registration, in terms of sub-regulation (1).
Procedure where registration is refused.

12. (1) After considering an application made under regulation 3, if the Board is of the opinion that a certificate should not be granted to the applicant, it may reject the application after giving the applicant a reasonable opportunity of being heard.

(2) The decision of the Board to reject the application shall be communicated to the applicant within thirty days of such decision.

(3) Where an application for a certificate is rejected by the Board, the applicant shall forthwith cease to act as an investment adviser:

Provided that nothing contained in this regulation shall affect the liability of the applicant towards its existing clients under law.

Conditions of certificate.
13. The certificate granted under regulation 9 shall, inter alia, be subject to the following
conditions:-

(a) the investment adviser shall abide by the provisions of the Act and these regulations;

(b) the investment adviser shall forthwith inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any material change in the information already submitted;

(c) the investment adviser, not being an individual, shall include the words ‘investment adviser’ in its name:

Provided that if the investment advisory service is being provided by a separately identifiable department or division or a subsidiary, then such separately identifiable department or division or subsidiary shall include the words ‘investment adviser’ in its name;

(d) individuals registered as investment advisers shall use the term ‘investment adviser’ in all their correspondences with their clients:

Provided that part-time investment adviser registered under these regulations shall use the term ‘part-time investment adviser’ in all their correspondences with their clients.

(e) individuals registered as investment advisers whose number of clients exceed three hundred at any point of time or the fee collected during the financial year exceeds three crore rupees, whichever is earlier shall –

(i) apply for grant of in-principle registration as non-individual investment adviser;

(ii) the in-principle registration shall be valid for a period of three months to assist in the transition from registration as individual investment adviser to non-individual investment adviser;

(iii) on completion of the transition period or upon grant of certificate of registration as non-individual investment adviser, whichever is earlier, the investment adviser shall surrender his registration as individual investment adviser.

(f) the number of clients of a part-time investment adviser shall not exceed seventy- five in total at any point of time.
Recognition of body or body corporate for administration and supervision of investment advisers.

14. (1) The Board may recognize a body or body corporate for the purpose of
administration and supervision of investment advisers to such extent and on such terms and conditions as may be specified by the Board.

(2) The Board may specify that no person shall act as an investment adviser unless such a person is enlisted with the recognized body or body corporate and in such an event, the provisions of these regulations and the specified provisions of the bye-laws or articles of such a body or body corporate shall apply to the investment adviser.

CHAPTER III
GENERAL OBLIGATIONS AND RESPONSIBILITIES General responsibility.
15. (1) An investment adviser shall act in a fiduciary capacity towards its clients and
shall disclose all conflicts of interests as and when they arise.

(2) An investment adviser shall not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided.

(3) An investment adviser shall maintain an arms-length relationship between its activities as an investment adviser and other activities.

(4) An investment adviser which is also engaged in activities other than investment advisory services shall ensure that its investment advisory services are clearly segregated from all its other activities, in the manner as prescribed hereunder.

(5) An investment adviser shall ensure that in case of any conflict of interest of the investment advisory activities with other activities, such conflict of interest shall be disclosed to the client.

(6) An investment adviser shall not divulge any confidential information about its client, which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.

(7) An investment advisor shall not enter into transactions on its own account which is contrary to its advice given to clients for a period of fifteen days from the day of such advice.

Provided that during the period of such fifteen days, if the investment adviser is of the opinion that the situation has changed, then it may enter into such a transaction on its own account after giving such revised assessment to the client at least 24 hours in advance of entering into such transaction.

(8) An investment advisor shall follow Know Your Client procedure as specified by the Board from time to time.

(9) An investment adviser shall abide by Code of Conduct as specified in Third Schedule.

(10) An investment adviser shall not act on its own account, knowingly to sell securities or investment products to or purchase securities or investment product from a client.

(11) In case of change in control of the investment adviser, prior approval from the Board shall be taken.

(12) Investment advisers shall furnish to the Board information and reports as may be specified by the Board from time to time.

(13) It shall be the responsibility of the investment adviser to ensure compliance with the certification and qualification requirements as specified under Regulation 7 at all times.

(14) An investment adviser who uses Artificial Intelligence tools, irrespective of the scale and scenario of adoption of such tools, for servicing its clients shall be solely responsible for the security, confidentiality, integrity of the client data, use of any other information or data to arrive at investment advice, investment advice based on output of Artificial Intelligence tools and compliance with any law for the time being in force.

Fees.
15A. Investment Adviser shall be entitled to charge fees for providing investment advice from a client , including an accredited investor] in the manner as specified by the Board.

Risk profiling.
16. Investment adviser shall ensure that,-
(a) it obtains from the client, such information as is necessary for the purpose of giving investment advice, including the following:-
(i) age;
(ii) investment objectives including time for which they wish to stay invested, the purposes of the investment ;
(iii) income details;
(iv) existing investments/ assets;
(v) risk appetite/ tolerance;
(vi) liability/borrowing details.

(b) it has a process for assessing the risk a client is willing and able to take, including:
(i) assessing a client’s capacity for absorbing loss;
(ii) identifying whether client is unwilling or unable to accept the risk of loss of capital;
(iii) appropriately interpreting client responses to questions and not attributing inappropriate weight to certain answers.

(c) where tools are used for risk profiling, it should be ensured that the tools are fit for the purpose and any limitations are identified and mitigated;

(d) any questions or description in any questionnaires used to establish the risk a client is willing and able to take are fair, clear and not misleading, and should ensure that:
(i) questionnaire is not vague or use double negatives or in a complex language that the client may not understand; 
(ii) questionnaire is not structured in a way that it contains leading questions.

(e) risk profile of the client is communicated to the client after risk assessment is done;

(f) information provided by clients and their risk assessment is updated periodically.

Suitability.
17. Investment adviser shall ensure that,-

(a) All investments on which investment advice is provided is appropriate to the risk profile of the client;

(b) It has a documented process for selecting investments based on client’s investment objectives and financial situation;

(c) It understands the nature and risks of products or assets selected for clients;

(d) It has a reasonable basis for believing that a recommendation or transaction entered into:
(i) meets the client’s investment objectives;
(ii) is such that the client is able to bear any related investment risks consistent with its investment objectives and risk tolerance;
(iii) is such that the client has the necessary experience and knowledge to understand the risks involved in the transaction.

(e) Whenever a recommendation is given to a client to purchase of a particular complex financial product, such recommendation or advice is based upon a reasonable assessment that the structure and risk reward profile of financial product is consistent with clients experience, knowledge, investment objectives, risk appetite and capacity for absorbing loss.

Disclosures to clients.
18. (1) An investment adviser shall disclose to a prospective client, all material information about itself including its business, disciplinary history, the terms and conditions on which it offers advisory services, affiliations with other intermediaries and such other information as is necessary to take an informed decision on whether or not to avail its services.

(2) to (3) omitted

(4) An investment adviser shall disclose to the client its holding or position, if any, in the financial products or securities which are subject matter of advice.

(5) An investment adviser shall disclose to the client any actual or potential conflicts of interest arising from any connection to or association with any issuer of products/ securities, including any material information or facts that might compromise its objectivity or independence in the carrying on of investment advisory services.

(6) An investment adviser shall, while making an investment advice, make adequate disclosure to the client of all material facts relating to the key features of the products or securities, particularly, performance track record.

(7) An investment adviser shall draw the client’s attention to the warnings, disclaimers in documents, advertising materials relating to an investment product which it is recommending to the client.

(8) An investment adviser who provides advisory services in respect of products or services which are outside the purview of the Board, shall disclose to the client that such products or services and his advisory services in respect of such products or services are outside the regulatory purview of the Board and no recourse from the Board shall be available to such clients for any grievance arising therefrom.

(9) An investment adviser shall disclose to the client the extent of use of Artificial Intelligence tools in providing investment advice.

Maintenance of records.
19. (1) An investment adviser shall maintain the following records,-
(a) Know Your Client records of the client;

(b) Risk profiling and risk assessment of the client;

(c) Suitability assessment of the advice being provided;

(d) Copies of agreements with clients, incorporating the terms and conditions as may be specified by the Board;

(e) Investment advice provided, whether written or oral;

(f) Rationale for arriving at investment advice, duly signed and dated;

(g) A register or record containing list of the clients along with PAN, the date of advice, nature of the advice, the details of products/securities in which advice was rendered and fee/consideration, if any charged/received for such advice;

(h) Records of communication including emails, call recordings etc. with all clients including prospective clients, as may be specified.

(2) All records shall be maintained either in physical or electronic form and preserved for a minimum period of five years:

Provided that where records are required to be duly signed and are maintained in electronic form, such records shall be digitally signed.

(3) An investment adviser shall conduct yearly audit in respect of compliance with these regulations from a member of Institute of Chartered Accountants of India or Institute of Company Secretaries of India or Institute of Cost Accountants of India and submit a report of the same as may be specified by the Board.

Website.
19A. An investment adviser shall maintain a functional website containing such details as may be specified by the Board.

Appointment of compliance officer.
20. (1) A non-individual investment adviser shall appoint either:
(i) a compliance officer; or
(ii) an independent professional who is a member of Institute of Chartered Accountants of India or Institute of Company Secretaries of India or Institute of Cost Accountants of India or member of any other professional body as may be specified by the Board, provided such a professional holds a relevant certification from NISM, as may be specified by the Board;
who shall be responsible for monitoring the compliance by the investment adviser in respect of the requirements of the Act, regulations, notifications, guidelines, instructions issued by the Board.

(2) Where independent professional referred in sub-regulation (1) of this regulation is appointed for monitoring compliance, the principal officer shall submit an undertaking to the Board or the body or body corporate recognized under regulation 14 of these regulations to the effect that the principal officer shall be responsible for monitoring the compliance in respect of the requirements of the Act, regulations, notifications, guidelines, instructions issued by the Board.

Redressal of client grievances.
21. (1) The Investment Adviser shall redress investor grievances promptly but not later
than twenty-one calendar days from the date of receipt of the grievance and in such manner as may be specified by the Board.

(2) An investment adviser shall have adequate procedure for expeditious grievance redressal.

(3) Client grievances pertaining to financial products in which investments have been made based on investment advice, shall fall within the purview of the regulator of such financial product.

(4) Any dispute between the investment adviser and his client shall be submitted to a dispute resolution mechanism that includes mediation and/or conciliation and/or arbitration in accordance with the procedure specified by the Board or through Ombudsman authorized or appointed for the purpose by any regulatory authority, as applicable.

Client level segregation of advisory and distribution activities.
22. (1) An individual investment adviser shall not provide distribution services.

(2) The family of an individual investment adviser shall not provide distribution services to the client advised by the individual investment adviser and no individual investment adviser shall provide advice to a client who is receiving distribution services from other family members.

(3) A non-individual investment adviser shall have client level segregation at group level for investment advisory and distribution services.

Explanation. —
(i) The same client cannot be offered both advisory and distribution services within the group of the non-individual entity.

(ii) A client can either be an advisory client where no distributor consideration is received at the group level or distribution services client where no advisory fee is collected from the client at the group level.

(iii) ‘Group’ for this purpose shall mean an entity which is a holding, subsidiary, associate, subsidiary of a holding company to which it is also a subsidiary or an investing company or the venturer of the company as per the provisions of Companies Act, 2013 for non-individual investment adviser which is a company under the said Act and in any other case, an entity which has a controlling interest or is subject to the controlling interest of a non-individual investment adviser.

(4) Non-individual investment adviser shall maintain an arm’s length relationship between its activities as investment adviser and distributor by providing advisory services through a separately identifiable department or division.

(5) Compliance and monitoring process for client segregation at group or family level shall be in accordance with the guidelines specified by the Board.

Implementation of advice or execution.
22A. (1) Investment adviser may provide implementation services to the advisory clients in securities market:

Provided that investment advisers shall ensure that no consideration including any commission or referral fees, whether embedded or indirect or otherwise, by whatever name called is received; directly or indirectly, at investment adviser’s group or family level for the said service, as the case maybe.

(2) Investment adviser shall provide implementation services to its advisory clients only through direct schemes/products in the securities market.

(3) Investment adviser or group or family of investment adviser shall not charge any implementation fees from the client.

(4) The client shall not be under any obligation to avail implementation services offered by the investment adviser.

CHAPTER IV INSPECTION
Board’s right to inspect.
23. The Board may suo motu or upon receipt of information or complaint appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents relating to investment advisers for any of the following reasons, namely: –
(a) to ensure that the books of account, records and documents are being maintained by the investment adviser in the manner specified in these regulations;

(b) to inspect into complaints received from clients or any other person, on any matter having a bearing on the activities of the investment adviser;

(c) to ascertain whether the provisions of the Act and these regulations are being complied with by the investment adviser;

(d) to inspect into the affairs of a investment adviser, in the interest of the securities market or in the interest of investors.

Notice before inspection.
24. (1) Before ordering an inspection under regulation 23, the Board shall give not less than ten days notice to the investment adviser.

(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors no such notice should be given, it may by an order in writing direct that the inspection of the affairs of the investment adviser be taken up without such notice.

(3) During the course of an inspection, the investment adviser against whom the inspection is being carried out shall be bound to discharge its obligations as provided in regulation 25.

Obligation of investment adviser on inspection.
25. (1) It shall be the duty of every investment adviser in respect of whom an inspection has been ordered under the regulation 23 and any other associate person who is in possession of relevant information pertaining to conduct and affairs of such investment adviser, including partners, directors, principal officer and persons associated with investment advice, if any, to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with such statements and information as the inspecting authority may require for the purposes of inspection.

(2) It shall be the duty of every investment adviser and any other associate person who is in possession of relevant information pertaining to conduct and affairs of the investment adviser to give to the inspecting authority all such assistance and shall extend all such co-operation as may be required in connection with the inspection and shall furnish such information as sought by the inspecting authority in connection with the inspection.

(3) The inspecting authority shall, for the purposes of inspection, have power to examine on oath and record the statement of any employees, directors, partners , principal officer and persons associated with investment advice or person responsible for or connected with the activities of investment adviser or any other associate person having relevant information pertaining to such investment adviser.

(4) The inspecting authority shall, for the purposes of inspection, have power to obtain authenticated copies of documents, books, accounts of investment adviser, from any person having control or custody of such documents, books or accounts.

Submission of report to the Board.
26. The inspecting authority shall, as soon as possible, on completion of the inspection submit an inspection report to the Board:

Provided that if directed to do so by the Board, the inspecting authority may submit an interim report.

Action on the inspection report.
27. The Board may after consideration of the inspection report and after giving reasonable opportunity of hearing to the investment advisers or its authorized representatives, issue such directions as it deems fit in the interest of securities market or the investors including,-

(a) requiring an investment adviser, partners, directors, principal officer and persons associated with investment advice not to provide investment advice for a particular period;

(b) requiring the investment adviser to refund any money collected as fees, charges or commissions or otherwise to the concerned clients along with the requisite interest.

(c) prohibiting the investment adviser, partners, directors, principal officer and persons associated with investment advice from operating in the capital market or accessing the capital market for a specified period.

CHAPTER V
PROCEDURE FOR ACTION IN CASE OF DEFAULT
Liability for action in case of default.
28. An investment adviser who –

(a) contravenes any of the provisions of the Act or any regulations or circulars issued thereunder;

(b) fails to furnish any information relating to its activity as an investment adviser as required by the Board;

(c) furnishes to the Board information which is false or misleading in any material particular;

(d) does not submit periodic returns or reports as required by the Board;

(e) does not co-operate in any enquiry, inspection or investigation conducted by the Board;

(f) fails to resolve the complaints of investors or fails to give a satisfactory reply to the Board in this behalf,
shall be dealt with in the manner provided under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

CHAPTER V-A
POWER TO RELAX STRICT ENFORCEMENT OF THE REGULATIONS

Exemption from enforcement of the regulations in special cases.
28A. (1) The Board may, exempt any person or class of persons from the operation of all or any of the provisions of these regulations for a period as may be specified but not exceeding twelve months, for furthering innovation relating to testing new products, processes, services, business models, etc. in live environment of regulatory sandbox in the securities markets.

(2) Any exemption granted by the Board under sub-regulation (1) shall be subject to the applicant satisfying such conditions as may be specified by the Board including conditions to be complied with on a continuous basis.
Explanation. — For the purposes of these regulations, “regulatory sandbox” means a live testing environment where new products, processes, services, business models, etc. may be deployed on a limited set of eligible customers for a specified period of time, for furthering innovation in the securities market, subject to such conditions as may be specified by the Board.

CHAPTER VI
MISCELLANEOUS
Power of the Board to issue clarifications etc.
29. In order to remove any difficulties in the application or interpretation of these regulations, the Board may issue clarifications and guidelines in the form of circulars.

Power of the Board over body or body corporate recognized under regulation 14.
30. The Board reserves the right to alter, modify and overrule any decision, action taken or penalties imposed by the body or body corporate recognized under regulation 14.

Savings
30A. Prior to the commencement of the Securities and Exchange Board of India (Investment Advisers) (Amendment) Regulations, 2024, any action taken or purported to have been taken or any action that may be taken against any person in relation to the membership of the body or body corporate recognised under regulation 14 shall be deemed to have been done or taken or may be taken under the corresponding provisions of these regulations.