Securities and Exchange Board of India (Sebi): Madhabi Puri Bach, Whole Time Member, on not finding any justifiable reason to revoke or modify the directions issued against the Noticee concluded that the findings in the interim order continue to stand at prima facie level, was of the opinion that the Noticee was prima facie, in contravention of various provisions of the IA Regulations and the PFUTP Regulations, as outlined in the Interim Order.
In the pertinent matter, the Noticee had challenged the impugned interim-ex parte order of SEBI. The interim ex-parte Order of SEBI stated that the Noticee:
-did not carry out risk profiling and suitability assessment of clients as per the provision of SEBI (Investment Advisers) Regulations, 2013 (hereinafter referred to as “IA Regulations”);
-did not charge fair and reasonable fee from clients as per the provision of IA Regulation;
-did also trigger the Code of Conduct for Investment Advisers by virtue of the above activities.
Therefore SEBI was of the view that the Noticee had violated SEBI (Investment Advisers) Regulations, 2013 (hereinafter referred to as “IA Regulations”) and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”)
The Tribunal considered various factors and the ex-parte order and the basis on which the Order was passed. It therefore, concluded that
“allowing the Noticee to continue providing its services to its clients, regardless of whether they have complained against the Noticee or not, would be tantamount to allowing the fraudulent investment advisory activity to continue, which will be inimical to the interests of clients and will also be in contravention of what has been envisaged under the IA Regulations. Hence, the interim order was passed in order to protect the interests of existing as well as prospective clients of the Noticee”.
It was further of the opinion that,
“As already mentioned in the interim order, existing clients of the Noticee have been sold services without any consideration of their financial situation, investment objective and risk profiling. The selling of such plans goes against the concept of customized advice which would be required to be provided based on the investors’ risk profile. This requirement of risk profiling goes to the very root of suitability of investment advice as clients are required to get the investment advice based on their risk profile. Exposing the existing clients to such advice, which has no co-relation to their risk profile, is against the interest of those investors. Further, the very nature of the investment advisory activity being practiced by the Noticee has been found to be fraudulent and in violation of the provisions of PFUTP Regulations and IA Regulations”.
[Dezire Research, In re, WTM/MB/WRO/WRO/13050/2021-22, decided on 20-08-2021]
Agatha Shukla, Editorial Assistant has reported this brief.
