Sebi proposes validation agency to verify performance claims of registered entities

Capital markets regulator Sebi has proposed a performance validation agency (PVA) that will independently verify the claims made by intermediaries including research analysts and investment advisors.

The regulator, in a consultation paper floated for public comments, said there has been a demand from registered intermediaries to showcase their performance to investors so as to establish their credibility in the eyes of 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 investors interest against unverified claims,” the paper noted.

The proposed PVA will validate the claims related to investment advice, ‘buy/sell/hold’ recommendations, mutual fund schemes, portfolio management services etc. by Sebi registered intermediaries such as portfolio managers, AMCs, stock brokers, research analysts among others.

If formed, PVA will be a wholly-owned subsidiary of market infrastructure institutions (MIIs) or a jointly supported entity by multiple MIIs, whose purpose would be to enable intermediaries to market their products based on validations made by the PVA.

The recognition of the proposed PVA would be based on the eligibility of the parent entity, for which the eligibility criteria will be prescribed by the regulator.

The Sebi paper said that the performance or claims will be validated by PVA based on specified parameters such as returns, risk, volatility and other suitable parameters as may be decided by industry forum in consultation with the validation agency and the regulator.”PVA will be responsible to maintain confidentiality of the information received by it during this process. For this purpose, the agency may partner with other knowledge partners such as credit rating agencies,” Sebi paper noted.

The validation agency will verify the claims of ‘actual profit’ made by clients, performance claims of Sebi registered intermediaries, performance of recommended stock or portfolio and any other performance claims.

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