Description

SEBI introduces interim arrangements allowing Investment Advisers and Research Analysts to communicate certified past performance data to clients on request, with specific conditions and timelines tied to PaRRVA operationalization.

Summary

SEBI has introduced interim arrangements allowing Investment Advisers (IAs) and Research Analysts (RAs) to communicate certified past performance data to clients prior to the operationalization of Past Risk and Return Verification Agency (PaRRVA). The framework permits IAs/RAs to provide past performance data certified by ICAI/ICMAI members to clients on specific request, subject to strict conditions including mandatory enrollment with PaRRVA within three months of its launch and a two-year sunset clause.

Key Points

  • IAs/RAs may provide past performance data certified by ICAI/ICMAI members to clients only on specific client request
  • Communication must be one-to-one basis only; public disclosure through websites or media is prohibited
  • Mandatory enrollment with PaRRVA required within three months of its operationalization to continue communicating certified past performance
  • Past performance data applicable only for period prior to PaRRVA operationalization
  • Post-PaRRVA operationalization, performance data for subsequent periods must be verified by PaRRVA only
  • Two-year sunset clause: After two years from PaRRVA operationalization, only PaRRVA-verified metrics can be used
  • Mandatory disclaimer required with all past performance communications
  • IAASB/RAASB directed to specify communication templates within one month in consultation with Industry Standard Forums and SEBI

Regulatory Changes

Framework Introduction: SEBI circular dated April 4, 2025 established the PaRRVA framework to allow IAs and RAs to display verified performance. This interim circular addresses the gap period before PaRRVA becomes operational.

Certification Requirements: Past performance data must be certified by a member of the Institute of Chartered Accountants of India (ICAI) or Institute of Cost Accountants of India (ICMAI).

Communication Restrictions:

  • One-to-one communication only
  • Client-specific request mandatory
  • No public disclosure permitted
  • No use of public media or websites

Mandatory Disclaimer: All communications must include specified disclaimer stating data is not PaRRVA-verified, may not be comparable across industry, past performance doesn’t guarantee future results, and SEBI registration doesn’t assure returns.

Compliance Requirements

For Investment Advisers and Research Analysts:

  1. Certification: Obtain certification from ICAI/ICMAI member for past performance data before communicating to clients

  2. Client Request: Only provide past performance data when specifically requested by client (including prospective clients)

  3. Communication Mode: Ensure one-to-one communication only; avoid any public disclosure

  4. PaRRVA Enrollment: Enroll with PaRRVA within three months of its operationalization to maintain ability to communicate certified past performance

  5. Disclaimer Compliance: Include mandatory disclaimer with every communication of past performance data

  6. Period Segregation: Use certified past performance only for pre-PaRRVA period; use PaRRVA-verified metrics for post-operationalization period

  7. Template Compliance: Follow templates to be specified by IAASB/RAASB within one month

For IAASB/RAASB:

  1. Specify communication templates within one month of circular date
  2. Consult with Industry Standard Forums for IAs and RAs and SEBI for template development

Important Dates

  • October 30, 2025: Circular issue date
  • Within 1 month from October 30, 2025: IAASB/RAASB must specify communication templates
  • Within 3 months of PaRRVA operationalization: IAs/RAs must enroll with PaRRVA to continue communicating certified past performance
  • 2 years from PaRRVA operationalization: Sunset date for using pre-PaRRVA past performance data; only PaRRVA-verified metrics permitted thereafter

Impact Assessment

Market Impact: Medium - provides interim solution for IAs/RAs to demonstrate track record while PaRRVA infrastructure is being established, potentially enhancing client decision-making.

Operational Impact:

  • IAs/RAs need to engage ICAI/ICMAI members for certification
  • Must establish one-to-one communication protocols
  • Need to prepare for mandatory PaRRVA enrollment
  • Website and marketing materials must be reviewed to ensure no public disclosure of past performance

Compliance Risk: High for non-compliance - circular explicitly states violations will lead to enforcement actions including summary proceedings.

Industry Benefit: Addresses industry representations by allowing performance demonstration during transition period while maintaining regulatory oversight through certification requirements and structured timeline.

Long-term Transition: Clear two-year sunset clause ensures smooth transition to PaRRVA-only framework, providing adequate time for IAs/RAs to build PaRRVA-verified track record.

Impact Justification

Introduces interim framework for IAs/RAs to communicate past performance with specific compliance requirements and timelines. Affects business operations but has structured transition period.