SEBI to set up body to vet performance claims of intermediaries

SEBI has proposed to create an independent body called the Performance Validation Agency (PVA) to validate the claims and performance related to investment advice and buy/ sell/hold recommendations by SEBI-registered intermediaries such as investment advisers, research analysts, portfolio managers, asset managers and stock brokers.

IAs and RAs are currently not allowed to make any reference to past performance as per the advertisement code. Stock brokers are not allowed to make any reference to the past or expected future return of algorithms or associate with any platform providing reference to the past or expected future return of algorithms.

Asset management companies calculate the performance of mutual fund schemes. Similarly, portfolio managers have been permitted to report their performance vis-à-vis certain benchmarks. The claims made by these entities are mostly self-verified and there is no dedicated agency to validate such claims.

A PVA would be required to process the data and performance claims of all such intermediaries and will be allowed to charge fees. Performance claims will be validated based on parameters such as returns, risk, volatility and other parameters as decided by industry forums in consultation with PVA and SEBI. The body will also validate claims of the actual profit made by clients on the basis of advice given by the intermediaries.

“There has been a demand from registered intermediaries to showcase their performance to investors so as to establish/ enhance their credibility in the eyes of investors and to help grow the reach of their services to investors. In order to address this demand, it is proposed to facilitate registered intermediaries to disclose their performance to investors, while at the same time having checks and balances to protect the interest of investors against unverified claims/ performance,” the regulator said in its proposals.

A PVA will be a wholly-owned subsidiary of MII or a jointly supported entity by multiple MIIs.

Comments on the proposals have been invited till September 21.