The Securities and Exchange Board of India (SEBI) has taken a significant step towards refining the operational framework for Research Analysts (RAs) by issuing new guidelines. These updates, which came into effect on December 16, 2024, aim to enhance transparency, accountability, and professionalism in research services.
Qualification and Certification Requirements
The revised guidelines clarify that the updated qualification standards apply to new RAs and non-individual research entities. Existing professionals, including principal officers and partners already engaged in research services, are exempt from this mandate. However, partnership firms lacking the prescribed qualifications must transition to a Limited Liability Partnership (LLP) or corporate structure by September 30, 2025.
Compliance Officer Appointment
Non-individual RAs are required to appoint an independent compliance officer who is a member of professional bodies like ICAI, ICSI, or ICMAI and holds certifications in relevant NISM exams. This ensures rigorous adherence to SEBI regulations.
Use of Artificial Intelligence in Research
SEBI emphasizes that RAs leveraging Artificial Intelligence (AI) tools must ensure data security, confidentiality, and integrity. Clients must be informed about the extent of AI usage, starting from the service onboarding stage. Existing clients must receive this disclosure by April 30, 2025.
Fee Structure and Limits
To ensure fairness, SEBI has capped the annual fee chargeable to individual and Hindu Undivided Family (HUF) clients at ₹1,51,000. This limit excludes statutory charges and will be reviewed every three years based on the Cost Inflation Index (CII). Provisions for advance payments and refunds in case of premature service termination are also detailed, ensuring client-friendly practices.
Segregation of Research and Distribution Activities
To avoid conflicts of interest, RAs must segregate research and distribution activities at the client level. Existing clients must choose between these services within the RA’s group or family structure, while new clients will have this option at onboarding. Compliance with this guideline is mandated by June 30, 2025.
Model Portfolio Recommendations
For RAs offering model portfolios, SEBI has introduced a structured framework to standardize practices. Compliance with these guidelines and audit requirements is expected by June 30, 2025.
Disclosure of Terms and Conditions
RAs must disclose detailed terms and conditions of their services to clients before initiating any research services or charging fees. This includes standardized Most Important Terms and Conditions (MITC), ensuring transparency and informed consent.
KYC and Record Maintenance
RAs are required to implement robust Know Your Customer (KYC) procedures and maintain interaction records with clients, including emails, phone recordings, and SMS, for a minimum of five years. For unresolved disputes, records must be preserved until resolution.
Annual Compliance Audits
SEBI mandates annual compliance audits for RAs to ensure adherence to all regulations. These audits will cover all aspects, including model portfolio guidelines, fee structures, and client disclosures.
These new guidelines represent a robust regulatory framework that balances client protection with operational flexibility for Research Analysts. By emphasizing compliance, transparency, and ethical practices, SEBI aims to elevate the credibility and efficiency of research services in India’s financial ecosystem. Research Analysts and entities must prioritize aligning their practices with these updated standards to foster trust and innovation in the industry.
Link- https://www.sebi.gov.in/legal/circulars/jan-2025/guidelines-for-research-analysts_90634.html
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