On October 25, 2024, the Securities and Exchange Board of India (SEBI) released a significant circular (SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2024/147) that introduces critical updates aimed at enhancing compliance protocols and operational efficiency for non-individual investment advisers. This circular addresses two primary aspects: the requirement for an Annual Compliance Certificate related to client-level segregation and a new timeline for submitting periodic reports. These changes reflect SEBI's ongoing commitment to streamline regulatory processes while ensuring robust investor protection.
1. Annual Compliance Certificate for Client Level Segregation
Historically, non-individual investment advisers were required to obtain an annual compliance certificate from their statutory auditors to confirm adherence to the client-level segregation requirements as set forth in Regulation 22 of the Investment Advisers Regulations, 2013. This regulation mandates that investment advisers keep advisory and distribution activities separate to protect client interests and prevent conflicts of interest.
With this latest circular, SEBI has introduced a noteworthy amendment: non-individual investment advisers can now secure their annual compliance certificates from any qualified auditor, not just statutory auditors. This change is part of SEBI's broader initiative to reduce compliance burdens and promote operational flexibility. By allowing advisers to choose from a wider pool of auditors, the process becomes more accessible and adaptable to their specific operational contexts.
The modified clause from the Master Circular now specifies:
The annual compliance certificate must be obtained within six months following the end of the financial year.
This certificate must be part of the compliance audit as per Regulation 19(3) of the IA Regulations.
Implications
This adjustment is expected to:
Enhance Accessibility: By allowing non-individual investment advisers to select from a broader range of auditors, firms can choose professionals that best understand their operational nuances.
Streamline Compliance: The simplified process reduces bureaucratic overhead, making it easier for advisers to meet regulatory requirements without compromising the integrity of client protection measures.
Promote Best Practices: Encouraging auditors to review client-level segregation practices can lead to improved transparency and accountability within the investment advisory sector.
2. Revised Timeline for Submission of Periodic Reports
Previously, investment advisers were bound by strict timelines for submitting periodic reports to the Investment Adviser Administration and Supervisory Body (IAASB). Timely and accurate reporting is crucial for maintaining oversight and ensuring compliance with regulatory standards.
The recent circular introduces a new provision allowing investment advisers to submit their periodic reports within 30 days following the end of the reporting period. This update is a significant shift from prior expectations and reflects a more flexible approach to regulatory reporting.
Timeline: For each half-yearly reporting period, advisers must now submit their periodic reports within 30 days of the period's conclusion.
Implications
This change offers several advantages:
Increased Flexibility: The extended timeline provides investment advisers with additional time to prepare comprehensive and accurate reports, ultimately improving the quality of the submissions.
Enhanced Compliance Rates: By reducing the pressure to meet stringent deadlines, the new timeline may result in higher compliance rates, fostering a more transparent and accountable advisory landscape.
Focus on Quality: With more time available, advisers can prioritize thoroughness and accuracy in their reporting, benefiting both their operations and the clients they serve.
Conclusion
The October 25, 2024, circular from SEBI marks a pivotal shift in regulatory practices for non-individual investment advisers in India. By simplifying the requirements for obtaining compliance certificates and extending the reporting timelines, SEBI is fostering an environment that prioritizes both regulatory adherence and operational efficiency. These changes not only facilitate smoother compliance processes for investment advisers but also enhance the overall integrity of the advisory sector.
Investment advisers are encouraged to thoroughly review the circular and adapt their compliance strategies accordingly to align with these new guidelines. This approach will ensure they continue to meet regulatory expectations while effectively serving their clients’ needs.
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