sebi

Copy Page

Published on 6 April 2025

SEBI's New Regulations: Enhancing Compliance and Investor Protection in India

Introduction

The Securities and Exchange Board of India (SEBI) has implemented significant changes to its regulatory framework, focusing on eliminating unauthorized investment advisory practices and unsubstantiated performance claims in the securities market. The recent circular, released on October 22, 2024, requires all SEBI-regulated entities—such as stock exchanges, clearing corporations, depositories, and their associated agents—to terminate relationships with unregistered investment advisors or those making unauthorized return claims. These amendments aim to enhance investor protection, increase transparency, and strengthen compliance within India's dynamic financial environment.

Key Highlights of the SEBI Circular and Amendments

Who is Impacted?

  • All SEBI-regulated entities, including:
    • Stock exchanges
    • Clearing corporations
    • Depositories
    • Asset management companies (AMCs)
    • Alternative Investment Fund (AIF) managers
    • Real Estate Investment Trust (REIT) managers
    • Their agents

What is Prohibited?

  • Entities must refrain from any direct or indirect association with individuals or entities offering investment advice or making performance claims regarding securities, unless those individuals or entities are registered or explicitly permitted by SEBI. This prohibition encompasses:
    • Partnerships
    • Advertising
    • Digital collaborations
    • Any form of endorsement

Exception for Specified Digital Platforms

  • Associations via “specified digital platforms” are allowed if these platforms have SEBI-approved mechanisms to prevent the misuse of unauthorized advisory services or claims. Guidelines for these platforms are anticipated soon.

Investor Education Exemption

  • Entities solely focused on investor education, without providing advice or making performance claims, are exempt from these requirements.

Mandatory Contract Termination

  • All SEBI-regulated entities must end contracts with non-compliant individuals or entities within three months from the issuance of the circular, specifically by January 22, 2025.

Digital Advertising and Marketing

  • Entities are required to ensure that their digital advertisements do not indirectly associate with unregistered advisors. Strict compliance is mandatory, especially where ad placement is controllable.

Clarification on Trading Calls

  • The term “trading calls” is now clearly excluded from the definition of investment advice, lessening ambiguity for market participants.

New Category: Part-Time Investment Advisers

  • The introduction of a “part-time investment adviser” category comes with specific compliance caps and requirements, providing greater regulatory clarity.

Expanded Definition of “Person Regulated by the Board”

  • This definition now includes a broader spectrum of market intermediaries, such as mutual fund AMCs and AIF managers.

Immediate Effect and Enforcement

  • The new regulations are effective from August 29, 2024, with established timelines for enforcement and compliance obligations.

Recent Regulatory Enhancements

Updates from December 2024 and January 2025

  • New deposit requirements for investment advisers based on client counts.
  • Increased flexibility in fee structures along with revised fixed fee limits.
  • Mandatory appointment of compliance officers for non-individual investment advisers.
  • Disclosure and segregation mandates for advisers utilizing AI or providing non-SEBI-regulated products.
  • Enhanced audit, record-keeping, and website requirements applicable to all investment advisers.

Conclusion: What Should Market Participants Do Now?

  • Conduct a thorough review of all current associations and contracts to ensure alignment with the new SEBI regulations.
  • Terminate any relationships with unregistered investment advisors or entities making unauthorized performance claims before January 22, 2025.
  • Stay informed about SEBI notifications regarding forthcoming guidelines on specified digital platforms and adapt digital marketing strategies accordingly.
  • Keep abreast of new compliance mandates for investment advisers, including disclosures regarding AI usage, fee structures, and the appointment of compliance officers.

These changes mark a decisive enhancement in regulatory scrutiny over India’s securities market, emphasizing the importance of investor protection and market integrity. Stakeholders must act swiftly to ensure compliance and mitigate the risk of regulatory actions.

Share: