SEBI's New Master Circular For Research Analyst

SEBI's New Master Circular for Research Analysts: A Comprehensive Overview

The Securities and Exchange Board of India (SEBI) has released a significant new Master Circular for Research Analysts (RAs). This comprehensive document aims to consolidate all previous guidelines and provisions related to RAs into a single, accessible framework. Issued on June 20, 2025, this circular supersedes the prior Master Circular of May 21, 2025, streamlining regulations and making it easier for both RAs and the public to understand and adhere to the rules governing the research analyst segment of the securities market.

Key Guidelines for Research Analysts (RAs)

The circular introduces or reiterates several critical requirements and operational guidelines for RAs:

1. Qualifications and Certifications: 

RAs are mandated to meet specific minimum qualification and certification requirements as per SEBI regulations. While new entrants must fulfill these entirely, existing RAs are notably exempt from revised qualification requirements, provided they possess the necessary NISM certifications.

2. Deposit Requirements: 

A crucial new provision involves RAs maintaining a deposit with a scheduled bank. This deposit must be marked as a lien in favor of the Research Analyst Administration and Supervisory Body (RAASB). The required deposit amount is tiered based on the number of clients:

• Up to 150 clients: ₹1 Lakh
• 151 to 300 clients: ₹2 Lakhs
• 301 to 1,000 clients: ₹5 Lakhs
• 1,001 and above clients: ₹10 Lakhs Existing RAs are given a compliance window until September 30, 2025, to meet these deposit requirements.

3. Dual Registration (Investment Adviser and Research Analyst): 

The circular clarifies that an individual or partnership firm already registered as an Investment Adviser (IA) can also register as an RA. However, they must strictly adhere to the regulations governing both roles separately and maintain a clear "arms-length relationship" to ensure a functional separation between their IA and RA services.

4. Part-time Research Analysts: 

A significant inclusion allows individuals or partnership firms engaged in other non-securities related business activities or employment to register as part-time RAs. These part-time RAs must:

• Possess the same qualifications and certifications as full-time RAs.
• Maintain an arms-length relationship between their RA and other activities.
• Prominently display a disclaimer (minimum 10 font size) explicitly stating that their other activities are not under SEBI's purview and no complaints can be raised with SEBI for those services.
• Disclose the nature of their other activities and ensure there is no conflict of interest with their RA services. Eligible examples include members of ICAI, ICSI, ICMAI, insurance agents, professors/teachers (with NOC from employer), architects, lawyers, or doctors. Importantly, those advising on assets like gold, real estate, or cryptocurrency are explicitly not eligible for part-time RA registration.
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5. Principal Officer Designation: 

For non-individual RAs structured as partnership firms, one partner must be designated as the principal officer. If no partner meets the prescribed qualification requirements, the firm is obligated to apply for registration as a Limited Liability Partnership (LLP) or a body corporate by September 30, 2025.

6. Compliance Officer: 

Non-individual RAs have the option to appoint an independent professional (a member of ICAI, ICSI, ICMAI, or other SEBI-specified bodies) as a Compliance Officer. This professional must hold specific NISM certifications (NISM-Series-XV: Research Analyst Certification Examination, NISM-Series-XV-B: Research Analyst Certification (Renewal) Examination, and NISM-Series-III A: Securities Intermediaries Compliance (Non-Fund) Certification Examination). Despite this appointment, the principal officer remains ultimately responsible for monitoring overall compliance.

7. Use of AI Tools: 

In a forward-looking provision, the circular addresses the growing use of Artificial Intelligence (AI) tools. RAs utilizing AI for their services are held solely responsible for client data security, confidentiality, integrity, and compliance with all applicable laws. Furthermore, RAs must explicitly disclose the extent of AI tool usage to clients when outlining service terms and conditions.

8. Research Services and Reports: 

The circular mandates that all research services provided by RAs must be substantiated by a comprehensive research report containing relevant data and analysis. RAs are required to maintain meticulous records of all such reports. It clarifies that research services provided "for consideration" include those where no direct fee is charged but are part of other bundled services (e.g., a stockbroker offering research to broking clients).

9. Fees Chargeable: 

SEBI emphasizes that fees charged by RAs must be fair and reasonable. For individual and Hindu Undivided Family (HUF) clients (who are not accredited investors), a maximum fee of ₹1,51,000 per annum per family applies. This limit is subject to revision every three years based on the Cost Inflation Index (CII) by RAASB in consultation with SEBI, excluding statutory charges. These fee limits do not apply to non-individual clients, accredited investors, or institutional investors seeking proxy adviser recommendations, whose fees are based on bilaterally negotiated contractual terms. RAs can charge fees in advance, but the amount cannot exceed one year's worth of fees. In case of early termination, clients are entitled to a proportionate refund for the unexpired period, and no breakage fee can be charged. Cash payments are strictly prohibited; fees must be paid via cheque, online bank transfer, or UPI. Existing clients are required to comply with these fee provisions by June 30, 2025.

10. Client-Level Segregation of Research and Distribution Activities: 

To prevent conflicts of interest, clients cannot simultaneously avail both research and distribution services within the RA's group or family. The Permanent Account Number (PAN) will serve as the control record for identification and segregation. For individuals, their "family of client" is considered a single client, and the PANs of all family members jointly and severally serve as the control record. RAs must obtain an annual certificate from a qualified professional (ICAI/ICSI/ICMAI member or auditor) confirming compliance with these segregation requirements. RAs providing services exclusively to institutional clients and accredited investors may be exempt if the client signs a waiver. Notably, stockbroking is not considered a distribution activity for this purpose. Compliance for this segregation is mandated by September 30, 2025.

11. Model Portfolio Recommendations: 

RAs offering model portfolios must adhere to specific guidelines detailed in Annexure-A of the circular. This includes comprehensive disclosures, clear methodology, defined investment horizons, regular review frequency, prominent risk disclosures, and appropriate benchmarking. Compliance for RAs providing model portfolios is required by June 30, 2025.

12. Disclosure of Terms and Conditions: 

RAs are obligated to disclose the terms and conditions of their research services to clients and obtain their explicit consent before rendering services or charging fees. This includes the Most Important Terms and Conditions (MITC). Consent can be obtained through physical signature or legally acceptable digital modes, such as Aadhaar-based e-signature.

13. KYC Requirements and Record Maintenance: 

RAs must rigorously follow Know Your Client (KYC) procedures for all fee-paying clients and maintain comprehensive KYC records. Records of all interactions with clients (including prospective clients), such as physical records, telephone recordings, emails, SMS messages, or other verifiable records, must be meticulously maintained. These records should be preserved for a minimum of five years, or longer if a dispute arises or SEBI requests.

Administration and Supervision

1. RAASB Recognition: 

In a significant development, BSE Limited has been officially recognized as the Research Analyst Administration and Supervisory Body (RAASB) for a period of five years, commencing July 25, 2024.

2. Enlistment with RAASB: 

RAs are now required to 'enlist' with RAASB, replacing the previous requirement of becoming members. Existing RAs are automatically deemed enlisted, and applications currently under process will also be considered enlisted once registered.

Investor Complaints and Protection

1. Grievance Resolution: 

Clients can escalate grievances related to research services to a designated person at the RA. RAs are responsible for resolving these grievances within 7 business working days or as specified by SEBI.

2. SCORES and ODR Platform: 

Investor grievances can also be redressed through SEBI's existing SCORES Platform and the Online Dispute Resolution (ODR) Platform, providing multiple avenues for dispute resolution.

3. Investor Charter: 

The Master Circular includes a detailed Investor Charter for Research Analysts (Annexure D), outlining the rights and expectations of investors.

4. Do's and Don'ts for Investors: 

To enhance investor awareness, the circular also provides essential 'Do's and Don'ts' for investors when dealing with RAs. These include warnings against providing funds for investment to the RA, falling for luring advertisements, and sharing login credentials.

Technology Related Provisions

1. SaaS-based Solutions Advisory: 

The circular includes an advisory for Financial Sector Organizations regarding the adoption and use of Software as a Service (SaaS) based solutions (Annexure F), emphasizing data security and regulatory compliance.

Miscellaneous Important Points

1. Advertisement Code: 

RAs must strictly comply with a detailed advertisement code. Advertisements must be accurate, true, and complete, and prominently feature the RA's registered name, SEBI registration number, and a standard warning: "Investment in securities market are subject to market risks. Read all the related documents carefully before investing." The use of superlative terms like "Best" is prohibited, though factual awards or recognitions can be mentioned. SEBI's logo should never be used in advertisements.

2. Conflict of Interest: 

The circular provides guidance to RAs on effectively dealing with potential conflicts of interest that may arise in the securities market.

3. AML/CFT Guidelines: 

RAs are required to refer to the Master Circular on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) for comprehensive compliance.

4. KYC Norms: 

RAs should also refer to various other SEBI circulars for specific KYC norms, including provisions for digital KYC accessibility for persons with disabilities.

5. Association with Certain Persons: 

RAs must comply with provisions regarding their association with persons engaged in unauthorized investment advice or performance claims. Existing contracts with such persons must be terminated by January 21, 2025.

This Master Circular represents a significant step by SEBI to streamline regulations, enhance transparency, and ultimately strengthen investor protection within the dynamic research analyst segment of the Indian securities market. It sets clear guidelines and responsibilities, fostering a more robust and compliant environment for all stakeholders.