Authorized Persons of Brokers not exempt from SEBI RIA Registration
- Only firms with RIA registration may offer financial advising services under the Sebi Registered Investment Advisor requirements.
- The Sebi RIA rules exclude ‘brokers and sub-brokers’ from registration but are vague on authorised people.
A new Sebi ruling has called into question the eligibility of ‘Authorised Persons’ or APs to provide financial advice services. Only firms with RIA registration may offer financial advising services under the Sebi Registered Investment Advisor (RIA) requirements. APs are entities that have been licenced by brokers. On November 18th, the regulator issued an order prohibiting Cash Cow Broking & advice Solution, an authorised person of Angel Broking Ltd that provided investment advice services to consumers, from accepting new clients.
The Sebi RIA rules exclude ‘brokers and sub-brokers’ from registration but leave the issue of authorised people unresolved. The major broker and the stock exchange register authorised people, whereas Sebi registers brokers. According to Sebi statistics, there were 2.41 lakh authorised people registered in India on March 31, 2018. At the time, there were around 26,000 registered sub-brokers. The regulator ceased registering sub-brokers in August 2018 and provided current sub-brokers the option of becoming full brokers or authorised persons.
Sebi observed in its ruling that Cash Cow provided suggestions in areas such as stock cash, Buy Today Sell Tomorrow (BTST), currency, and others and charged monthly fees for its packages. Complaints to Sebi against Cash Cow also claimed that the corporation promised a minimum profit. Sebi rejected the defence that brokers and sub-brokers are exempt from registration under Sebi Investment Advisor rules, holding that authorised people are not sub-brokers and hence are not exempt.
Customers benefit from’market access’ provided by an authorised participant. However, even if investment advice is included in the definition of’market access,’ the company in question cannot charge fees for it and can only serve customers of the broker in question (not third parties). Furthermore, the Authorised Participant may only be compensated by the stock broker. Cash Cow was found to have breached these standards by the regulator. It was also highlighted that one of Cash Cow Broking and Advisory’s partners had later sought SEBI RIA registration under a new name but had not revealed the fact that he had previously provided advisory services. In the meanwhile, the regulator has stopped the business from accepting new customers.
