compliance simplified

Submission of annual compliance audit report by Investment Advisers

Notice No. : 20220519-01

Notice Dated : 19/05/2022

 

Submission of annual compliance audit report by Investment Advisers.

 

Attention of the BASL enrolled Investment Adviser (IA) members is drawn to Regulation 19(3) of the SEBI (Investment Advisers) Regulation, 2013 and SEBI circular no. SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020. 

 

As per said SEBI (IA) Regulation, 2013 Investment advisers are required to conduct yearly audit in respect to compliance with the regulations from a member of Institute of Chartered Accountants of India or Institute of Company Secretaries of India within six months from the end of each financial year. Investment advisers are also required to ensure that the adverse findings of the audit, if any, alongwith the action taken report thereof duly approved by the individual IA / management of the non -individual IA need to be reported within a period of one month from the date of the audit report but not later than October 31st of each year for the previous financial year. A format of the audit reporting (to be duly signed by both the Investment Adviser and by member of ICAI/ICS) is attached.  Investment Advisers are advised to submit compliance of all the regulations mentioned in SEBI (IA) Regulation, 2013 as amended from time to time.

 

Also, as per guidelines issued by SEBI vide circular no. SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020 Investment Advisers need to obtain and maintain on record an annual certificate from an auditor (in case of Individual IA) and its statutory auditor (in case of a non- individual IA) within six months of the end of the financial year, confirming compliance with the client level segregation requirements as specified in the IA Regulations. The said certificate as per specified SEBI circular shall form part of the aforesaid compliance audit report in terms of Regulation19 (3) of the IA Regulations.

 

Accordingly, BASL (IA) members need to submit the following on a yearly basis :

 

  • Annual compliance audit reports in terms of Regulation 19(3) of the IA Regulations (which shall also include annual certificate confirming compliances with client level segregation).

 

  • To submit adverse findings of the audit, if any, alongwith action taken thereof duly approved by the individual IA/management of the non-individual IA to BASL (in addition to filings with SEBI as per circular dated September 23, 2020) within a period of one month from the date of the audit report but not later than, October 31st of the each year for the previous financial year.

 

BASL Investment Adviser members are advised to submit both the above reports for the last financial year ended 2021-2022 with the stipulated time period. 

 

Also those BASL members who are yet to submit their aforesaid reports for the financial year ended 2020-2021 are advised to submit the same by June 30, 2022

BASL IA members are advised to mention the subject of their email for aforesaid compliance reporting as “Annual compliance audit reporting for FY ended ____ – _____– BASL IA Member Name __________ BASL Member ID : ___________ .” and submit the same to BASL email id : compliance.ria@bseasl.com

 In case of any queries BASL IA members may reach out vide email to compliance.ria@bseasl.com.

Annexure

Compliance Status for all the below mentioned points as Complied or No Complied or Not Applicable. In cases of non compliance and / or non applicability a detailed reason is required to be provided. Further in the event of any adverse findings (in the audit required to be conducted by IAs), action taken details are also required to be provided for the relevant points mentioned below. 

Application for grant of certificate
(1) 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.

Consideration of application and eligibility criteria

Regulation 6 states all matters, which are relevant for the purpose of grant of certificate of registration.

Qualification and certification requirement.
An individual investment adviser or a principal officer of a non-individual investment adviser registered as an investment adviser under these regulations and persons associated with investment advice shall have minimum qualification and certification requirements as mentioned in Regulation 7(1) and 7(2).

Qualification and certification requirement.

Existing individual IAs above fifty years of age shall not be required to comply with the qualification and experience requirements specified under Regulation 7(1) (a) and 7(1) (b) of the amended IA Regulations. However, such IAs shall hold NISM accredited certifications and comply with other conditions as specifies under Regulation 7(2) of the amended IA regulations at all times.

Net worth

(1) Investment advisers who are non individuals shall have a net worth of not less than fifty lakh rupees.

(2) Investment advisers who are individuals shall have net tangible assets of value not less than five lakh rupees.

Conditions of certificate

(b) The investment adviser shall 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.

Registration as Non-Individual Investment Advisor.

An individual IA, whose number of clients exceed one hundred and fifty in total, shall apply for registration as nonindividual investment adviser within such time as specified under this clause.

General Responsibility

The regulation 15 imposes certain responsibilities on the Investment Adviser for the transactions it undertakes on behalf of its clients.

Fees

Investment Adviser shall be entitled to charge fees for providing investment advice from a client in the manner as specified by the Board.

Fees

Investment Advisers shall charge fees from the clients in either Assets under Advice (AUA) mode or Fixed fee mode.

Risk profiling

This involves profiling, assessing the risk appetite of each client individually, and communication of such profile to the respective client.

Suitability

Investment adviser shall ensure suitability of the advice being provided to the client.

Risk profiling and suitability for nonindividual clients.

(b) In case of non-individual clients, IA shall use the investment policy as approved by board/management team of such non-individual clients for risk profiling and suitability analysis.

(c) The discretion to share the investment policy/relevant excerpts of the policy shall lie with the non-individual client. However, IA shall have discretion not to onboard non-individual clients if they are unable to do risk profiling of the nonindividual client in the absence of investment policy.

Disclosure to clients

This involves disclosure of all necessary information by the investment adviser to its clients.

Maintenance of records

This regulation requires maintenance of certain records, preservation of the same and audit of such records by the prescribed professional.

Maintenance of record.

IA shall maintain and preserve records of interactions, with all clients including prospective clients, where any conversation related to advice has taken place, in the form as specified under this clause.

Agreement between IA and the client.

IA shall enter into an investment advisory agreement with its clients as prescribed under this clause and shall ensure that neither any investment advice is rendered nor any fee is charged until the client has signed the aforesaid agreement.

Appointment of Compliance officer

An investment adviser shall appoint a compliance officer who shall be responsible for monitoring the compliance by the investment adviser.

Redressal of client grievances

Investment adviser shall redress client grievances promptly through an adequate procedure.

Client level segregation of advisory and distribution activities.

(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.

(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.

Client Level Segregation of Advisory and

Distribution Activities

Compliance and monitoring process for client segregation at group or family level shall be in accordance with the guidelines as specified under this clause.

Implementation of advice or execution

(1) Investment adviser may provide implementation services to advisory clients, provided no consideration shall be obtained directly or indirectly either at group level or at family level.

(2) Investment adviser shall provide implementation services only through direct schemes.

(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.

Display of details on website and in other communication channels.

IAs shall prominently display the information as specified under this clause, on its website, mobile app, printed or electronic materials, know your client forms, client agreements and other correspondences with the clients.

Compliance of the SEBI circular for Advisory for financial Sector

Organizations regarding Software as a Service (SaaS) based solutions for half yearly ended 31st March 2022 and 30th September 2022.

Publishing Investor Charter and disclosure of Investor Complaints

(2) All registered investment advisers are required to publish investor charter on their websites and mobile applications. If registered investment adviser does not have websites/mobile applications, then as a one-time measure, send investor charter to the investors on their registered e-mail address.

(3) All registered investment advisers are required to disclose the details of investor complaints by seventh of the succeeding month on a monthly basis on their websites and mobile applications. If investment adviser does not have websites/mobile applications, then send status of investor complaints to the investors on their registered email on a monthly basis.