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Sat Jan 11, 2025
SEBI's New Guidelines for Research Analysts (2025) Date: January 8, 2025
Issued by: Securities and Exchange Board of India (SEBI)SEBI has introduced important updates for Research Analysts (RAs) through the Securities and Exchange Board of India (Research Analysts) (Third Amendment) Regulations, 2024. These changes took effect on December 16, 2024. Below is a simplified explanation of the key guidelines every Research Analyst must follow:
1. Qualification and Certification Requirements: Regulation 7 of the RA Regulations defines the educational and certification criteria for Research Analysts. Existing individual Research Analysts, Principal Officers of research entities, employed analysts, and partners providing research services do not need to meet the new qualification requirements. However, they must hold valid NISM certifications and follow the conditions in Regulation 7(3).
2. Deposit RequirementRegulation 8 introduces a deposit system based on the number of clients an RA handles:
| Number of Clients | Deposit Amount |
| Up to 150 clients | ₹1 lakh |
| 151 to 300 clients | ₹2 lakh |
| 301 to 1,000 clients | ₹5 lakh |
| 1,001 and above clients | ₹10 lakh |
The deposit must be kept in a scheduled bank with a lien in favor of the Research Analyst Administration and Supervisory Body (RAASB).
RAs must update the deposit amount if their client count changes.
This must be done by April 30 each year.SEBI may revise the deposit amounts when necessary.
Existing RAs need to fulfill the deposit requirement by April 30, 2025.
New RAs must meet the deposit requirement immediately upon registration.
Eligibility for Part-Time RA Registration:
Members of professional bodies like ICAI, ICSI, ICMAI, or licensed insurance agents under IRDAI.
Professors or teachers with a No Objection Certificate (NOC) from their employer.
Professionals like architects, lawyers, or doctors.
Individuals in education-related businesses, provided they avoid prohibited activities like giving securities advice without SEBI registration.
Non-Eligibility for Part-Time RA Registration: Those advising on investments in gold, real estate, cryptocurrency, etc., are not eligible. If a Chartered Accountant (CA) provides general tax advice, registration isn't required. But if they offer security-specific recommendations, they must register as a part-time RA.
Key Conditions for Part-Time RAs:
Must meet the same qualification and certification requirements as full-time RAs.
Must submit an undertaking to maintain a clear separation between RA services and other business activities.
Must display a prominent disclaimer (minimum 10 font size) stating that their other services are not regulated by SEBI.
Must disclose the nature of other activities and prevent any conflict of interest.
5. Designation as Principal Officer Non-individual Research Analysts structured as partnership firms must designate one of their partners as the Principal Officer. If no partner meets the qualification and certification requirements, the firm must convert into a Limited Liability Partnership (LLP) or a body corporate and register by September 30, 2025.
Non-individual RAs can appoint an independent professional as their Compliance Officer.
This professional must be a member of ICAI, ICSI, ICMAI, or another SEBI-approved body and must hold relevant NISM certifications.
Required NISM Certifications: NISM-Series-XV: Research Analyst Certification ExaminationNISM-Series-XV-B: Research Analyst Certification (Renewal) ExaminationNISM-Series-III A: Securities Intermediaries Compliance (Non-Fund) Certification ExaminationThe Principal Officer must provide an undertaking to SEBI/RAASB, confirming responsibility for regulatory compliance.
7. SEBI Guidelines for Research Analysts: AI Usage and Research Services1. Use of Artificial Intelligence (AI) Tools in Research ServicesSEBI has introduced new regulations regarding the use of Artificial Intelligence (AI) tools by Research Analysts (RAs) and research entities. These regulations ensure that AI is used responsibly in delivering research services.
Key Guidelines:Accountability: Research analysts using AI tools must ensure the security, confidentiality, and integrity of client data. They are fully responsible for how AI tools are used and must comply with all applicable laws.
Client Disclosure: RAs must inform clients about the extent to which AI tools are used in their research services. This disclosure should be made when sharing the terms and conditions of services and updated whenever necessary.
Compliance Timeline: Existing clients must be informed about the use of AI tools by April 30, 2025.
8. Research Services Provided by Research Analysts
SEBI has also updated the guidelines on how research services should be delivered to maintain transparency and reliability.
Evidence-Based Research: All research services must be supported by a formal research report that includes relevant data and analysis. These reports must be properly recorded and maintained by the research analyst or research entity. Definition of Research Services ‘For Consideration’:Research services provided by an RA or research entity are considered ‘for consideration’ if any direct or indirect payment is involved, even if the client isn't charged a separate fee.
For example, if a company registered as both a stockbroker and a research analyst provides research reports to its stockbroking clients without charging extra, it is still classified as a paid service.IX.
SEBI Guidelines on Research Analyst Fees (2025): Fee Limit: Research Analysts (RAs) can charge a maximum of ₹1,51,000 per year per family for individual and HUF clients. This limit excludes statutory charges and will be reviewed every three years.
Non-Individual Clients: No fee limit for non-individual clients, accredited investors, or institutional investors. Fees are decided through contracts.
Advance Fee: RAs can collect fees in advance, but only for up to one quarter.
Refund Policy: If services are ended early, RAs must refund the unused portion of the fee without charging a breakage fee.
Transparency: RAs must clearly disclose fee details and inform clients about the optional Centralised Fee Collection Mechanism (CeFCoM).
Compliance Deadlines: Existing clients must be aligned with these rules by June 30, 2025. New clients must follow them immediately.
X. Client-Level Segregation of Research and Distribution Activities” Exclusive Services:
Existing clients can choose either research or distribution services within the RA's group but not both. New clients must select one service during onboarding.
No Forced Changes: Clients can keep existing investments without being forced to sell or switch.
Client Identification: PAN will be used to track and separate client services. Family members’ PANs are linked for individual clients.
Annual Compliance Check: RAs must get an annual certificate from an auditor confirming compliance.
Institutional Clients Exempt: Institutional and accredited investors are exempt if they sign a waiver.Stock Broking Excluded: Stockbroking is not considered a distribution activity.
Deadline: Compliance must be ensured by June 30, 2025.
XI. Guidelines for recommendation of ‘model portfolio’ by RAs :
Model Portfolio Guidelines: RAs can offer model portfolio recommendations following SEBI's prescribed framework. Compliance with these guidelines must be ensured by June 30, 2025.Model portfolio practices will be included in regular compliance audits.
Disclosure of Terms and Conditions: RAs must clearly disclose all terms and conditions to clients and obtain their consent before offering services or charging fees. Mandatory terms, including the Most Important Terms and Conditions (MITC), will be standardized by industry bodies in coordination with SEBI.
Consent can be given physically or through legally valid digital methods like DigiLocker e-signature. Existing clients' consent must be obtained by June 30, 2025.
XII. Disclosure of Terms and Conditions to Clients for Research Analysts (RAs)
According to SEBI’s Regulation 24(6) for Research Analysts (RAs), here’s what RAs need to do when offering research services to clients:
Disclose Terms and Conditions: Before providing any research services, the RA or research entity must inform the client about the terms and conditions under which the services will be provided. The client must then agree to these terms.
No Service or Fee Without Consent: Research services cannot be provided, and no fees can be charged, until the client has given their consent to the terms and conditions.
Mandatory Terms and Conditions: There are certain essential terms and conditions that must be disclosed. These are listed in Annexure-B. These must include the Most Important Terms and Conditions (MITC), which will be set by SEBI in consultation with industry bodies.
Client Consent: The client’s consent to the terms and conditions can be obtained in various ways, such as a physical signature or through an electronic signature (e.g., DigiLocker with Aadhaar-based e-signature).
Existing Clients: If the client is already receiving services, the RA or research entity must ensure they disclose these terms and get consent from them by June 30, 2025.
As per SEBI's guidelines under Regulation 25(1) of the Research Analyst (RA) Regulations, Research Analysts or research entities must follow the Know Your Client (KYC) process for their fee-paying clients and maintain KYC records. Here’s what it means in simple terms:
KYC Process: RAs must perform KYC checks for clients who pay for their services. This helps ensure that the identity of the client is verified and there is no risk of fraud.
Maintaining Client Interaction Records: Research Analysts or entities must keep records of all interactions with clients, including potential clients. These records can be in the form of:
A physical signed document
Phone call recordings
Emails from the client’s registered email address
SMS messages
Any other legally verifiable communication
Duration of Record Keeping: These records should be kept from the first interaction with a client until the research services are completed. In case of a dispute or if SEBI requires it, these records must be kept for a longer period. If there’s a dispute, the records should be kept until the issue is resolved. SEBI may also ask to preserve records until further notice.
Compliance Deadline: Research Analysts must ensure that they are following these requirements by June 30, 2025
.IX. Compliance Audit Requirements for Research Analysts (RAs):
Annual Compliance Audit: RAs must conduct a yearly audit to ensure compliance with SEBI regulations. The audit must be completed within six months of the financial year’s end. A report with audit findings should be submitted to SEBI/RAASB within one month. If any issues are found, RAs must detail the corrective actions taken and submit them to SEBI/RAASB within one month, by October 31st. An annual certificate from a qualified auditor (ICAI/ICSI/ICMAI) confirming compliance must also be provided.
Publication of Audit Report: The audit report and any adverse findings must be published on the RA’s website. Clients should have access to the audit report for transparency.
Website Requirement: RAs must maintain a functional website containing specific details as prescribed by SEBI. They must confirm website details to SEBI by June 30, 2025.
Effective Date: These provisions are effective immediately unless otherwise specified for particular clauses.
Prof. Sheetal Kunder
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