SEBI Proposes Independent Body To Verify Claims Of Registered Entities
Securities and Exchange Board of India (SEBI), the capital markets regulator, is proposing the establishment of an independent body known as the 'Performance Validation Agency (PVA)' to verify performance claims made by SEBI-registered entities.
The proposal aims to allow registered intermediaries to disclose their performance to investors while ensuring safeguards against unsubstantiated claims or performance data. SEBI envisions the PVA validating claims related to investment advice, recommendations (buy/sell/hold), mutual fund schemes, portfolio management services, algorithms, and more, offered by entities like Investment Advisors (IAs), Research Analysts (RAs), portfolio managers, Asset Management Companies (AMCs), and stock brokers.
SEBI's objective is to provide validated performance information to investors, thereby expanding the reach of intermediary services. This initiative comes in response to growing concerns about the use of profit and loss statements on social media to attract clients, with some arguing against such practices.
SEBI notes that some entities may exaggerate their performance claims to mislead investors, as these claims are often self-verified, lacking independent validation.
Investment Advisers and Research Analysts are mentioned as entities that currently cannot reference past performance, despite being involved in providing investment advice and recommendations. Registered entities have expressed the desire to demonstrate their performance to establish credibility and expand their services.
The PVA's recognition criteria will involve processing entity claims data while safeguarding customer data privacy. SEBI emphasises the importance of the entity handling data responsibly due to the substantial volume of data involved.
SEBI suggests that the PVA could be a wholly-owned subsidiary of a Market Infrastructure Institution (MII) or jointly supported by multiple MIIs, given their extensive experience in handling securities market data.
The regulator is soliciting public feedback on topics such as whether claims should be validated before disclosure, the necessity of a separate entity like PVA, its potential status as an MII subsidiary, and other types of claims that should undergo PVA validation.
