On January 2, 2025, the Securities and Exchange Board of India (SEBI) issued a crucial notification under the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007, commonly referred to as the CAPS Regulations, 2007. This new notification expands on previous directives, specifically affecting investment advisers and associated individuals, ensuring that those engaged in offering investment advice meet a higher standard of certification.
Background of the Certification Requirement
The core purpose behind the CAPS Regulations, 2007, is to enhance professionalism, accountability, and transparency within the securities market. It mandates that certain associated persons, including investment advisers and their staff, be certified by SEBI-recognized institutions like the National Institute of Securities Markets (NISM). This certification ensures that those offering investment advice are well-versed in the legal, regulatory, and market intricacies that influence investment strategies.
In line with this, SEBI had earlier issued notifications in 2013 and 2014 under the Investment Advisers Regulations, 2013 (IA Regulations, 2013), specifying that individual investment advisers and their associated persons must obtain certification by passing the NISM Series-X-A: Investment Adviser (Level 1) Certification and NISM Series-X-B: Investment Adviser (Level 2) Certification examinations. These certifications have been prerequisites for those involved in providing investment advice, whether as individuals or as part of an advisory firm.
Key Points of the Latest Notification
The January 2025 notification takes the regulatory framework a step further by specifying additional requirements for the certification of investment advisers and their associated persons:
Mandatory Certification for Investment Advisers: The notification reiterates that both individual investment advisers and those serving as principal officers of non-individual advisory firms must obtain certifications from NISM. This includes the NISM Series-X-A (Level 1) and NISM Series-X-B (Level 2) examinations, as was established in earlier notifications from 2013 and 2014. These examinations test candidates on their proficiency in offering investment advice and understanding the regulatory environment.
Renewal of Certification: To maintain compliance with the certification requirements, investment advisers must renew their certification before the current one expires. This renewal must be completed by passing the NISM Series-X-C: Investment Adviser Certification (Renewal) Examination. This renewal exam, effective from 2024, ensures that certified professionals stay up-to-date with the latest regulatory changes and market trends.
Impact on Investment Adviser Firms: The notification also clarifies that the partners of investment adviser firms—especially those structured as partnership firms—must comply with these certification requirements if they are involved in providing investment advice. The new rules further promote a uniform standard across all individuals engaged in advisory roles, whether on an individual basis or within firms.
Transition from Earlier Notifications: With the issuance of this new notification, the previous certifications and requirements outlined in the 2013 and 2014 SEBI notifications are rescinded, except for actions already taken under those notifications. This marks a transition into the new regulatory framework, streamlining the certification process and ensuring it remains relevant to contemporary market conditions.
The Way Forward
This SEBI notification reflects the growing importance of professional expertise in the financial services industry. By mandating that investment advisers and their associates maintain up-to-date certifications, SEBI is ensuring that only qualified professionals are providing advice that could significantly impact individual and institutional investors alike. The new rules are not just about testing knowledge but also about fostering trust and credibility in the Indian securities markets.
