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The Securities and Exchange Board of India (SEBI) has introduced new regulations for investment advisers (IAs) and research analysts (RAs) regarding their use of technical and legal terminology and promises of assured returns to investors in their communications.
These regulations are part of SEBI‘s new advertisement code to strengthen the conduct of IAs and RAs when issuing any form of advertisement.
The new code includes all forms of communication, including pamphlets, research reports, newspaper or TV ads, mails, electronic messaging, and social media platforms.
This follows SEBI’s recent instruction to mutual funds not to assure returns to investors and to adhere to the advertisement code as part of the SEBI MF regulations.
The circular issued on April 5 states that IAs and RAs must avoid making false, misleading, biased, or deceptive statements based on assumptions or projections.
SEBI has also prohibited statements designed to exploit the lack of experience or knowledge of investors, the use of extensive technical or legal terminology, and the inclusion of excessive details that may distract investors.
IAs and RAs cannot refer to any report, analysis, or service as free unless it is genuinely free without any condition or obligation.
Moreover, they cannot make any promise or guarantee of assured or risk-free return to investors or refer to the past performance of the IA/RA.
SEBI has mandated that prior approval must be obtained from the regulator’s recognized supervisory body before the issue of any advertisement or material.
Finally, IAs and RAs must include the name of the IA/RA, registered office address, SEBI Registration Number, and other regulatory details in the advertisement.
The provisions of the circular will be applicable with effect from May 1, 2023.