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In a recent consultation paper, SEBI has proposed to allow Investment Advisors (IAs) and Research Analysts (RAs) to use liquid funds to comply with their mandatory deposit requirements.
Currently, IAs and RAs are using fixed deposit accounts to mark lien in favor of the Investment Adviser Administration and Supervisory body (IAASB) or Research Analyst Administration and Supervisory body (RAASB). The existing IAs and RAs are required to comply with deposit requirements by June 30, 2025.
However, IAs and RAs have highlighted difficulties in opening fixed deposit accounts and lien marking like non-uniform interpretation of third-party fixed deposit procedures across different bank branches, delays in issuance of necessary FD letters/documents by banks and acknowledging a lien, inconsistencies in interest payout options at different bank branches and limited awareness about the SEBI-mandated lien marking requirements among the bank staff.
Due to these issues, IAs and RAs had requested the regulator to provide the option of liquid funds to mark the lien in favor of the Administration and Supervisory Body (ASB). Based on these recommendations, SEBI has proposed the following:
- IAs and RAs may be allowed to provide units of liquid funds marked as lien in favor of ASB. The lien on the units will be marked for at least one year. The units of liquid funds can be in the form of Statement of Account (SOA) or in demat as chosen by the IA/RA
- The eligible amount of deposit for lien marking will be the value of liquid fund units reduced by a haircut based on ASB and the applicable exit load
- The value of units of liquid funds will be reviewed every year as per the guidelines for deposit requirement. If the value of the units falls below the threshold deposit requirement or in the event of increase in deposit requirement due to increase in the number of clients, IA/RA will have to pay the additional amount within the specified time period by marking lien on additional liquid fund units equivalent to the amount required
You can comment on the regulator’s proposal on this link before May 29, 2025.
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