Rules On Performance Validation Agencies For Asset Managers To Come Soon: SEBI Chairperson

A regulation on performance validation agencies across asset management industries is expected to come soon, Madhani Puri Buch said.

"There are multiple working groups within the committee of performance validation agency concept as each entity will have different parameters—be it PMS managers, mutual funds, or investment advisors—and how it will all be implemented," the chairperson of the Securities and Exchange Board of India told reporters on Monday. "The regulation will deal with performance validation across the asset management industry."

In its consultation paper in September, the SEBI proposed that financial influencers, or "finfluencers," need to be registered with it and adhere to specific guidelines. It also proposed to ban unregistered finfluencers from partnering with mutual funds and brokers for promotional or advertisement activities.

The regulator got relevant feedback on its consultation paper on finfluencers, Buch said. "We realised that the traditional approach will not work and (we) will need a different approach to this whole space."

"The first and critical block is the performance validation agency... We do want advisors, but (we) don't want (them) to mislead investors, which comes from claims of performance," she said. "There must be a validation for the performance claim."

The first regulation expected to come from the regulator is from the performance validation agencies and once that mechanism is in place, the market regulator will work on having a wider set of regulations defining the dos and don'ts of the same.

"One essential part of the framework would be to not claim performance unless it is validated," she explained. "For instance, we permit MFs to claim performance based on the format designed and the industry relies upon audited numbers, which SEBI inspects."

Going forward, as the consultation paper also says, even mutual funds will migrate to their performance validation agency, she said.

"So now it will be a third party who will have the data and validate it. This will now be automated instead of the manual process," Buch said. "We'll give an update to our board soon on what we have learned from the process."