The Securities Exchange Board of India (“SEBI”), in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 read with SEBI (Research Analysts) Regulations, 2014 (“RA Regulations”) vide Circular No. SEBI/HO/MIRSD/ MIRSD-PoD-1/P/CIR/2025/004[1], dated January 08, 2025, issued guidelines for Research Analysts (“RAs”). The provisions laid down hereunder shall come into effect immediately except certain clauses which shall be effective at a later date (“Guidelines”).
Upon considering the inputs from public consultation, SEBI had issued the Securities and Exchange Board of India (Research Analysts) (Second Amendment) Regulations, 2024, dated December 16, 2024, which came into effect immediately. In furtherance of the same, SEBI has issued these Guidelines under the amended RA Regulations. The key highlights of the Guidelines are as follows:
I. Qualification and Certification Requirements:
Regulation 7 of the RA Regulations outlines the necessary qualifications and certification for RAs. It is clarified under these Guidelines that the existing RAs, principal officers of non-individual RAs or research entities, and those employed as RAs or partners of RAs, providing research services are exempted from the revised qualification requirements. However, they must hold the appropriate National Institute of Securities Markets (NISM) certifications and adhere to conditions as specified in Regulation 7 (3) of the RA Regulations.
II. Deposit Requirements:
(a) Under Regulation 8 of the RA Regulations, RAs must maintain a deposit amount specified by SEBI, which is based on the maximum number of clients they had on any day in the previous financial year. The deposit amounts specified under these Guidelines are as follows:
- Up to 150 (one hundred and fifty) clients: INR 1,00,000 (Indian Rupees One Lakh only)
- 151 (one hundred and fifty-one) to 300 (three hundred) clients: INR 2,00,000 (Indian Rupees Two Lakhs only)
- 301 (three hundred and one) to 1,000 (one thousand) clients: INR 5,00,000 (Indian Rupees Five Lakhs only)
- 1,001(one thousand and one) and above clients: INR 10,00,000 (Indian Rupees Ten Lakhs only)
(b) This deposit must be maintained with a scheduled bank and marked as a lien in favour of the Research Analysts Administration and Supervisory Body (“RAASB”) in the manner specified by RAASB. The deposit amount shall be updated by April 30 of the following financial year, if there is any change in the number of clients. Further, it is clarified that SEBI will periodically review deposit requirements.
(c) The existing RAs shall comply with this deposit requirement latest by June 30, 2025. However, for new applicants, the requirement is effective immediately from the date of issuance of these Guidelines.
III. Registration:
(a) Registration both as Investment Adviser (“IAs”) and RA:
The proviso of Regulation 9 of the RA Regulations stipulates that individuals or partnership firms registered as IAs may be granted a certificate of registration as RAs, subject to SEBI’s terms and conditions. The key points highlighted in the for such registration are:
- Eligibility: IAs, who are individuals or partnership firms, registered under the SEBI (Investment Advisers) Regulations, 2014 (“IA Regulations”), must comply with all rules, regulations, and reporting requirements under both the IA Regulations and the RA Regulations.
- Undertaking: These IAs/ RAs shall provide an undertaking to maintain an arm’s-length relationship between their investment advisory services and research services.
(c) Registration as part-time RA:
According to Regulation 2 (nd) read with Regulation 2 (nb) of the RA Regulations, a part-time RA is ‘an individual or partnership firm who is also engaged in any other business activity/ employment which is unrelated to securities and does not involve handling/ managing of money/ funds of client/ person or providing advice/ recommendation to any client/ person in respect of any products/ assets for investment purposes’.
An applicant engaged in activities or employment permitted by any financial sector regulator, or under statutory self-regulatory organizations like Institute of Chartered Accountants of India (“ICAI”), Institute of Company Secretaries of India (“ICSI”), or Institute of Cost Accountants of India (“ICMAI”), shall be eligible for registration as a part-time RA.
However, it is clarified that in line with Regulation 2 (1) (u) read with Regulation 7 of RA Regulations, part-time RAs shall meet the same qualification and certification requirements as full-time RAs under the RA Regulations. The part-time RAs shall further comply with the requirements provided under these Guidelines.
(c) Designation as a ‘principal officer’:
Regulation 2 (1) (oa) of the RA Regulations provides that in a partnership firm registered as a non-individual RA, one of the partners must be designated as the principal officer. If none of the partners meet the minimum qualification and certification requirements, the firm must register as an RA in the form of a Limited Liability Partnership (LLP) or a body corporate. This change must be completed by September 30, 2025.
(d) Appointment of an independent professional as Compliance Officer:
According to Regulation 26 of the RA Regulations, a non-individual RA can appoint independent professionals who are members of ICAI, ICSI, ICMAI, or other SEBI-specified professional bodies, provided they have the relevant National Institute of Securities Markets (NISM) certification.
IV. Services undertaken by the RAs:
(a) Under Regulation 24 (7) of the RA Regulations, RAs using Artificial Intelligence (“AI”) tools, regardless of their scale and application, are solely responsible for the security, confidentiality, and integrity of client data. They are also responsible for the use of any information or data to provide research services, the research itself, and compliance with all relevant laws. As per Regulation 19 (vii) of the RA Regulations, RAs must disclose to clients the extent to which AI tools are used in providing research services. This disclosure must be made at the time of entering into the agreement for new clients and the existing clients must receive this disclosure and be compliant with these requirements by April 30, 2025.
(b)Regulation 20 (4) of the RA Regulations mandates that research services provided by a RA or research entity shall be supported by a research report containing the relevant data and analysis. These Guidelines direct the entities to maintain all records of such reports.
V. Fees Chargeable to Clients:
Regulation 15 A of the RA Regulations allows RAs to charge fees for research services, including those provided to accredited investors, as specified by SEBI. The Guidelines provide detailed compliances regarding the fees chargeable to the clients. The RAs may charge fees subject to SEBI’s ceiling and ensure fees are fair and reasonable and shall always disclose terms and conditions to clients, including fee limits, agreed fees, and guidance on the optional Centralised Fee Collection Mechanism for IA and RA (CeFCoM).
VI. Client Level Segregation of Research and Distribution Services:
To comply with Regulation 26 C (5) of the RA Regulations regarding client-level segregation at the RA’s or research entity’s group/ family level, the Guidelines lay out compliance and monitoring process which shall be followed by the RAs. However, it is clarified that the existing clients who wish to use the RA’s services shall not be eligible to avail distribution services within the RA’s group/ family, and vice versa. A new client, on the other hand, shall be eligible to avail either research services or distribution services within the group/family of RA, at the time of on-boarding.
VII. Guidelines for Recommendation of ‘Model Portfolio’ by RAs:
Research services provided by RAs, as per Regulation 2 (1) (u) read with Regulation 2 (1) (wa) of the RA Regulations, include model portfolio recommendations. Regulation 24 (8) requires RAs or entities offering model portfolios to follow SEBI guidelines. The model portfolio framework guidelines have been provided in Annexure-A of the Guidelines, and compliance to the same must be ensured by June 30, 2025. Additionally, compliance with audit requirements under Regulation 25 (3) of the RA Regulations shall cover obligations set out in the model portfolio guidelines.
VIII. Disclosure of Terms and Conditions to the Client:
(a) Regulation 24 (6) of the RA Regulations requires RAs or research entities to disclose the terms and conditions of their research services to clients and obtain their consent. The Guidelines list down certain minimum mandatory terms and conditions which have been provided in Annexure-B of the Guidelines.
(b) Terms and conditions must include the Most Important Terms and Conditions (MITC) as specified by SEBI, standardized by the Industry Standards Forum (ISF) in consultation with RAASB and SEBI.
(c) Clients may provide consent in person or through legally acceptable methods, including DigiLocker-enabled Aadhaar-based e-signature.
(d) RAs must comply with these requirements and obtain consent from existing clients by June 30, 2025.
IX. KYC Requirements and Maintenance of Record:
RAs shall maintain records of interactions with all clients, including prospective clients, where any conversation related to services has taken place. These records can be in the form of:
- Physical records written and signed by the client; or
- Telephone recordings; or
- Emails from registered email IDs; or
- SMS messages; or
- Any other legally verifiable records.
These records shall commence from the first interaction and continue until the completion of research services. RAs or research entities must maintain these records for a period of 5 (five) years. However, in case of disputes, records should be kept until the dispute is resolved or until further notice from SEBI. RAs must ensure compliance with these requirements by June 30, 2025.
X. Compliance audit requirements:
Regulation 25 (3) of the RA Regulations mandate that RAs shall conduct an annual audit to ensure compliance with the RA Regulations. Further, the RA shall be responsible to comply with the provisions for the audit requirements under these Guidelines and ensure that the annual compliance audit report details compliances with each provision of the RA Regulations, along with the circulars and guidelines issued under them.
XI. Requirement of Website and the Details on the Website:
(a) According to Regulation 19 A of the RA Regulations, the RAs must maintain a functional website containing the details specified by SEBI.
(b) RAs must confirm their website details to RAASB by June 30, 2025.
[1] https://www.sebi.gov.in/legal/circulars/jan-2025/guidelines-for-research-analysts_90634.html