Sebi plans light-touch penalty structure for investment advisers

With an aim to strengthen the investment advisory ecosystem, markets regulator Sebi is working on a raft of measures, including a standardised light-touch penalty structure, a digital regulatory guidance platform, and a common advertisement code, its chairman Tuhin Kanta Pandey said.

Speaking at an event organised by the Association of Registered Investment Advisers (ARIA), Pandey said the investment advisory ecosystem in India is currently at an important stage of transition.

At present, there are around 1,000 registered investment advisers (IAs) in the country-- about 470 individuals and 530 non-individual entities.

He said the regulator is working on a standardised light-touch penalty structure aimed at encouraging compliance while ensuring transparency and fairness. “A standardised light-touch penalty structure for IAs is being worked out. This should promote compliance while ensuring transparency and fairness,” he said.

The regulator is also developing a digital platform -- SEBI SETU -- to provide simple, end-to-end regulatory guidance for investment advisers, covering the entire lifecycle from registration to ongoing compliance, he added.

In addition, the regulator is preparing a common advertisement code for all intermediaries to reduce operational challenges and improve consistency in communication.

Among other initiatives, a working group has been constituted to review the existing regulatory framework for Mutual Fund Distributors (MFDs) and examine overlaps, if any, between MFDs and investment advisers.

Pandey said a simplified certification module is also being developed by National Institute of Securities Markets (NISM) for individuals associated with investment advice who are engaged in sales and other non-core functions. However, he expressed concern over the declining number of registered investment advisers despite a rapidly expanding investor base.

“It is a matter of concern that the number of registered investment advisers has declined since 2021. As India’s investor base expands rapidly, our market needs more regulated advisers. Otherwise, the gap will be filled by unregulated voices such as influencers, who present opinion as expertise and speculation as strategy,” Pandey said.

According to Sebi’s Investor Survey, nearly 62 per cent of prospective investors are influenced by influencers, which he described as undesirable as it distorts investor behaviour, weakens discipline and erodes trust.

“The issue is not only regulatory-- it is also cultural. Investors tend to gravitate towards ‘free’ recommendations, as the habit of paying for professional financial advice is still evolving in India,” he said. Pandey added that the key challenge is to make the registered advisory model viable, scalable and attractive for qualified professionals.