The much-awaited amendments to SEBI's Research Analyst (RA) Regulations are finally out. The SEBI (Research Analysts) (Third Amendment) Regulations, 2024, were officially published in the Official Gazette on December 16, 2024. These amendments align with SEBI’s consultation paper and board meeting discussions. While the amendments are applicable immediately, some specific details are yet to be disclosed. SEBI is expected to release a detailed circular addressing these aspects soon.
Let’s break down the key changes and their impact on Research Analysts.
SEBI has redefined the term Research Analyst (RA) to include any person receiving any form of consideration (cash or non-cash) for providing research services. This applies to individuals, partnership firms, LLPs, and companies.
New Definition of "Research Services"
SEBI has expanded the definition of research services, which now includes:
- Buy/Sell/Hold recommendations
- Price targets
- Issuing research reports
- Providing opinions on securities, including IPOs
- Recommending model portfolios
- Providing trading calls
- If you offer model portfolio services or short-term entry/exit calls, you must register as a Research Analyst.
Fees Charged by RAs
While SEBI's consultation paper hinted at potential fee caps for RAs, no specific details have been included in the amended regulations. We will have to wait for further clarification from SEBI.
Part-Time Research Analysts (RA)
SEBI has introduced the concept of a Part-Time RA, allowing professionals engaged in other non-financial business activities or employment to register as an RA.
Key Conditions for Part-Time RAs:
- Cannot be engaged in financial advisory or fund management
- Must submit an NOC from their employer at the time of application
- Client limit: Maximum 75 clients at any point
- Must comply with all full-time RA compliance requirements
- If a part-time RA exceeds 75 clients, they must transition to full-time RA status. SEBI has not yet outlined the process for this transition.
Can RAs Distribute Mutual Funds?
No. Individual RAs cannot offer mutual fund distribution services.
Moreover, if an RA’s family member (spouse, parents, children) is a mutual fund distributor, that RA cannot provide research services to the same client (and vice versa). Similarly, non-individual RAs cannot offer both research and distribution services to the same client within their entity or group.
Eligibility Criteria for Research Analysts
Who Can Apply for an RA License?
SEBI has relaxed the qualification criteria. Now, even a graduate in specified fields can apply, provided they have a degree in:
- Finance
- Accountancy
- Business Management
- Commerce
- Economics
- Capital Markets
- Banking
- Insurance
- Actuarial Science
- Other financial services
There is no longer any experience requirement. However, NISM Series XV certification is still mandatory.
Qualification Requirements for Employees (PARS)
SEBI has introduced a new term – Persons Associated with Research Services (PARS).
PARS includes:
a) Employees involved in research services
b) Relationship managers and client-facing staff
c) All PARS must meet qualification requirements, which include a graduate degree and NISM certification.
d) Principal Officer (PO) for Non-Individual RAs
e) A PO is mandatory for non-individual RAs.
f) The PO must fulfill all qualification and certification requirements.
g) Directors or partners involved in research services must also meet these requirements.
.
An independent professional (CA/CS/CMA) can act as a Compliance Officer, provided they hold:
NISM-Series-XV: Research Analyst Certification Examination
NISM-Series-XV-B: Research Analyst Certification (Renewal)
NISM-Series-III A: Securities Intermediaries Compliance (Non-Fund)
If appointing an
external Compliance Officer, the RA must submit an
undertaking that the
principal officer will monitor compliance.
5. Revised Fee Structure for RAs- Maximum Fee Limit: ₹1,51,000 per annum per family (applies to individuals & HUF clients).
- No Fee Limit for: Non-individuals & Accredited Investors.
- Advance Fee: Max one quarter in advance.
- Refund Policy: If a client discontinues services, proportionate refund must be issued without breakage fees.
Compliance Deadline:- Existing Clients: June 30, 2025
- New Clients: Immediate effect
6. Client Level Segregation Requirement- RAs must ensure clear segregation between RA activities and other services at a family/group level.
- Must obtain an annual certificate confirming client segregation from a CA/CS/CMA/statutory auditor.
- Compliance processes must be documented and audited.
Deadline: 6 months from the end of the financial year.
7. Terms & Conditions & Client Consent- RAs must take explicit consent from clients before providing services or charging fees.
- Most Important Terms & Conditions (MITC) must be disclosed.
- SEBI will soon issue MITC guidelines.
- Accepted Modes of Consent:
- Physical signature
- DigiLocker-enabled Aadhaar e-sign
- Digital Signature (DSCs) / Electronic Signature (DocuSign, PandaDoc, etc.)
Deadline: June 30, 2025
8. Client Communication & Record-Keeping- RAs must maintain records of all client communications, including:
- Signed physical records
- Phone recordings
- Emails
- SMS records
- Any legally verifiable record
Retention Period: 5 years Compliance Deadline: June 30, 2025
9. New Audit Requirements Annual compliance audit (within 6 months of financial year-end). Submit audit report to RAASB within 1 month. Action Taken Report (ATR) for adverse findings (by Oct 31). Publish audit reports on the RA’s website. Provide audit reports to clients upon request. Applicable from: FY ending March 31, 2025
10. Other Key Compliance Updates Principal Officer in a Partnership Firm- One partner must be designated as Principal Officer.
- If no partner qualifies, corporate registration is mandatory by Sept 30, 2025.
Model Portfolio Services- RAs can offer Model Portfolio, subject to SEBI’s guidelines.
- Compliance Deadline: June 30, 2025
AI Tool Usage Compliance- RAs using AI tools must:
- Ensure data security & confidentiality.
- Disclose AI tool usage to clients by April 30, 2025.
Mandatory Research Reports- All research services must be backed by a research report with relevant data & analysis.
- Reports must be maintained for audits.
Dual Registration as RA & IA Individuals & Partnership Firms can now register
as both RA & IA.
Must maintain
separate compliance for both roles.
Mandatory Website Requirement- RAs must have a fully functional website displaying all SEBI-mandated details.
- Deadline: June 30, 2025
Final TakeawaySEBI’s new regulations bring significant compliance obligations for Research Analysts. Ensure full compliance within the specified deadlines to avoid penalties or registration issues.
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