SEBI is set to reconsider the norms issued for research analysts last month amid concerns over their viability, sources say. Following a meeting last week between senior SEBI officials and the Association of Registered Research Analysts of India (ARRAI), as well as other groups of research analysts, detailed representations have been submitted outlining the challenges posed by certain compliance requirements under the new regulations along with possible solutions.
The regulator is currently reviewing these submissions, and it is expected that some improvements will be made to the circular in the next 3-4 months, according to sources. The revised regulations, issued in January, aimed to ease entry barriers for research analysts by lowering eligibility criteria, relaxing the experience requirement, and allowing registrations for part-time analysts. However, SEBI also introduced some measures to prevent investor fraud, such as disallowing the collection of fees for research services in advance for more than a quarter.
Pranit Arora, Co-founder and CEO of Univest group, expressed concerns about the three-month advance payment restriction impacting the operational capabilities of research analysts. He mentioned that without the flexibility to collect fees for longer durations, analysts might need to consider increasing prices to maintain service quality, affecting clients. The enhanced ‘know your customer’ (KYC) procedures and detailed record-keeping requirements have also increased the compliance burden for research analysts.
Representations made by analysts have suggested mandating KYC only for paying customers to alleviate some of the costs involved. However, some research analysts have already begun surrendering their licenses and shutting down their operations due to the increased compliance burden. The representations also proposed allowing established, corporate research analysts to continue with the earlier model of advance fee collection, citing lower risks of investor fraud.
Overall, analysts are hopeful that SEBI will consider these operational aspects and address their concerns to ensure the sustainability of their businesses. The regulator is expected to discuss these issues in the next board meeting, with potential changes to the regulations in the coming months.
