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SEBI (Portfolio Managers) Regulations, 2020 - Safeguarding Investor Interest
Regulation 11 of the SEBI (Securities and Exchange Board of India) (Portfolio Managers) Regulations, 2020 prescribes the conditions of registration as a Portfolio Manager. Vide SEBI (Portfolio Managers) (Second Amendment) Regulations, 2021 notified on 26 April 2021, sub-regulation (aa) was inserted in the aforesaid Regulation 11.
Regulation 11(aa) provides that a Portfolio Manager shall be required to obtain prior approval of SEBI in case of change in control in a manner prescribed by SEBI. The procedural compliance in case of change in control has been iterated via Circular SEBI/HO/IMD/IMD-I/DOF1/P/CIR/2021/564 issued on 12 May 2021.
This procedure is summarized as under:
- An online application shall be made to SEBI for prior approval through the SEBI Intermediary Portal.
- The prior approval granted by SEBI shall be valid for six months from the date of such approval.
- Applications for fresh registration pursuant to change in control shall be made to SEBI within six months from the date of prior approval.
- Pursuant to the grant of prior approval by SEBI, all the existing investors/clients shall be informed about the proposed change prior to effecting the same.
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Our Comments
Portfolio management regulations have undergone crucial amendments over the past 24 months. SEBI has introduced numerous regulations to safeguard investor interest by unifying the structure of the portfolio management industry. Key amendments introduced by SEBI in this regard include:
- Raising the minimum investment threshold from INR 25 Lakh to INR 50 Lakh
- Implementation of trail-based commission without any upfront fees, cap on operating expenses, and exit loads
- Intermediary-free, direct onboarding of clients
- Uniformity in reporting performance on a time-weighted basis
- Caps introduced in manager group entity transactions
- Enhanced disclosure requirements intended to bring about transparency in reporting
Although procedural, this latest amendment is a welcomed one as it shall enable:
- SEBI to better regulate any change in control of registered portfolio managers and
- Investors/Clients to make an informed decision of whether they would like to continue with their existing Portfolio Manager or choose a new advisor due to change in the management structure.
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