Description

SEBI introduces interim framework allowing Investment Advisers and Research Analysts to communicate certified past performance data to clients on request before Past Risk and Return Verification Agency (PaRRVA) becomes operational.

Summary

SEBI has introduced an interim arrangement allowing registered Investment Advisers (IAs) and Research Analysts (RAs) to provide certified past performance data to clients before the Past Risk and Return Verification Agency (PaRRVA) becomes operational. This framework was developed in response to industry representations requesting the ability to communicate historical performance to clients for periods prior to PaRRVA operationalisation.

Key Points

  • IAs/RAs may provide past performance data certified by ICAI/ICMAI members to clients only upon specific request
  • Past performance data must be communicated on one-to-one basis only, not through public media or websites
  • IAs/RAs must enrol with PaRRVA within three months of its operationalisation to continue sharing certified past performance
  • Certified past performance applies only to periods before PaRRVA operationalisation
  • After PaRRVA operationalisation, subsequent performance data must be verified by PaRRVA only
  • A mandatory disclaimer must accompany all past performance communications
  • After two years from PaRRVA operationalisation, only PaRRVA-verified metrics can be used
  • IAASB/RAASB must specify communication templates within one month in consultation with industry forums and SEBI

Regulatory Changes

New Interim Framework for Past Performance Communication:

  1. Certification Requirement: Past performance data must be certified by members of Institute of Chartered Accountants of India (ICAI) or Institute of Cost Accountants of India (ICMAI)

  2. Communication Restrictions:

    • Only on specific client request (including prospective clients)
    • Strictly one-to-one basis
    • No public disclosure through websites, media, or any other public mode

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

  4. Timeline Segregation:

    • Pre-PaRRVA period: Certified performance under interim arrangement
    • Post-PaRRVA period: Only PaRRVA-verified metrics allowed

  5. Sunset Clause: After two years from PaRRVA operationalisation, pre-PaRRVA period performance data cannot be communicated in any form

Compliance Requirements

For Investment Advisers and Research Analysts:

  1. Obtain certification from ICAI/ICMAI member for past performance data before sharing with clients

  2. Maintain one-to-one communication protocol - no public dissemination through:

    • Company websites
    • Social media
    • Public advertisements
    • Mass communications

  3. Include mandatory disclaimer in all past performance communications verbatim as specified in the circular

  4. Enrol with PaRRVA within three months of its operationalisation if intending to continue sharing past performance

  5. Transition to PaRRVA-verified metrics for all performance data post-PaRRVA operationalisation date

  6. Discontinue use of pre-PaRRVA certified performance data after two years from PaRRVA operationalisation

For IAASB/RAASB:

  1. Develop and specify templates for certified past performance data communication
  2. Complete template specification within one month of circular date
  3. Consult with Industry Standard Forums for IAs and RAs and SEBI during template development

Important Dates

  • October 30, 2025: Circular effective date
  • Within 1 month from October 30, 2025: IAASB/RAASB must specify communication templates
  • Within 3 months of PaRRVA operationalisation: IAs/RAs must enrol with PaRRVA to continue sharing certified past performance
  • Date of PaRRVA operationalisation: Cut-off date separating certified past performance period from PaRRVA-verified period
  • 2 years after PaRRVA operationalisation: Complete transition to PaRRVA-verified metrics only; pre-PaRRVA certified performance cannot be used thereafter

Impact Assessment

Positive Impacts:

  1. Industry Enablement: Addresses long-standing demand from IAs and RAs to showcase track records to potential clients

  2. Competitive Advantage: Allows established IAs/RAs with strong historical performance to differentiate themselves in client acquisition

  3. Informed Decision-Making: Enables prospective clients to evaluate advisers/analysts based on certified historical performance data

  4. Ease of Doing Business: Provides interim solution while PaRRVA infrastructure is being established

Compliance Considerations:

  1. Cost Implications: IAs/RAs must bear certification costs from ICAI/ICMAI members

  2. Operational Adjustments: Need to establish one-to-one communication protocols and ensure no public disclosure

  3. Dual Timeline Management: Must manage separate frameworks for pre-PaRRVA and post-PaRRVA performance data

  4. Template Compliance: Must await IAASB/RAASB template specifications before communicating past performance

  5. Transition Planning: IAs/RAs have limited three-month window post-PaRRVA operationalisation to enrol or lose ability to share certified past performance

Risk Factors:

  1. Non-Compliance Consequences: Violations subject to SEBI enforcement actions

  2. Standardisation Gaps: Until templates are specified, format variations may create confusion

  3. Investor Protection: Disclaimer requirement emphasizes performance data limitations and non-comparability across industry

Market Impact:

This circular primarily affects operational practices of Investment Advisers and Research Analysts rather than direct market operations. It enhances transparency in the advisory industry while maintaining investor protection through mandatory disclaimers and certification requirements. The phased approach allows smooth transition to PaRRVA-verified framework while addressing immediate industry needs.

Impact Justification

High importance as it enables IAs and RAs to share past performance data with clients through interim arrangement. High impact affecting all registered Investment Advisers and Research Analysts in communicating track records to prospective clients.