SCRA 1956 • SEBI Act 1992 • PFUTP Regulations • Intermediaries Regulations • Insider Trading Regulations • SEBI Investment Advisers Regulations, 2013 • PMLA 2002 • Other Acts • Violation Case Studies
An Act to prevent undesirable transactions in securities by regulating the business of dealing in them. Gives the Central Government regulatory jurisdiction over:
A securities transaction is essentially a contract; SCRA is the law specifically applicable to securities contracts.
Establishes the Board "to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market."
Key functions/measures (Section 11):
SEBI Act also empowers SEBI to impose penalties & initiate adjudication against intermediaries for defaults like failure to furnish information or enter agreements with clients.
Prohibits fraudulent, unfair and manipulative trade practices in securities. "Fraud" includes any act/expression/omission/concealment to induce another to deal in securities — wrongful gain or loss is inconsequential in determining if fraud occurred. Illustrative instances:
Investors/Clients: Render best possible advice considering client needs, environment, and own professional skills.
High Standards of Service: Observe integrity, dignity, fairness, ethics, professionalism in prompt/effective/efficient dealings; responsible for acts/omissions of employees & agents.
Due Diligence, No Collusion: High service standards, due skill/diligence over staff, independent professional judgment; no collusion detrimental to investors.
Fees: No increase in charges without proper advance notice to clients.
Put in place to prohibit insider trading — trading based on Unpublished Price Sensitive Information (UPSI) gives undue advantage and damages market integrity.
"Insider" means any person who is: (i) a connected person; OR (ii) in possession of, or having access to, UPSI.
The Regulations cover: who can be considered insiders, what is prohibited for them, and the systemic provisions/fair conduct policies that listed companies and intermediaries must lay down and follow.
Notified to regulate the activity of providing investment advisory services by independent advisers, distributors, banks and other entities.
| Term | Meaning (essence) |
|---|---|
| Investment adviser | Any person who, for consideration, is in the business of providing investment advice to clients/persons/groups, incl. part-time advisers and anyone holding out as one |
| Investment advice | Advice on investing/buying/selling/dealing in securities & portfolios, written/oral/any medium, includes financial planning. Excludes advice via mass media (newspapers/TV/etc.) and "trading calls" |
| Family of client | Individual client + dependent spouse, children, parents |
| Family of individual IA | IA + spouse, children, parents |
| Assets under advice | Aggregate NAV of securities for which IA has rendered advice (regardless of who implements) |
| Part-time investment adviser | Individual/firm providing advice for consideration while also engaged in another business/employment |
| Principal officer | MD/designated director/managing partner/executive chairman responsible for overall IA business & operations (one partner in case of partnership firms) |
| Persons associated with investment advice | Members, partners, officers, directors, employees, sales staff engaged in providing advisory services to IA's clients |
| Trading calls | Intraday/ultra-short/non-delivery-based recommendations not personalised to an investor (per RA Regulations, 2014) — excluded from "investment advice" |
No person may act/hold out as an investment adviser without a SEBI certificate of registration (valid until suspended/cancelled). SEBI considers, among others:
Exempted intermediaries must still comply with the general obligations in Chapter III of the IA Regulations.
IA must maintain a deposit (sum specified by SEBI) with a scheduled bank, marked as lien in favour of the recognised body/body-corporate that administers & supervises IAs. Available to meet dues from arbitration/conciliation under the Online Dispute Resolution (ODR) Mechanism.
IA may charge fees (incl. accredited investors) per SEBI norms; advance fees (if agreed) cannot exceed one year's fee. Fee-limit/mode/refund/breakage provisions apply only to individual & HUF clients (non-accredited).
Non-individual IA must appoint either: (i) a compliance officer, or (ii) an independent professional (ICAI/ICSI/ICWAI member or SEBI-specified, holding NISM certification) responsible for monitoring compliance with SEBI Act/regulations/circulars. If (ii), the principal officer must submit an undertaking accepting responsibility.
Grievance redressal: Redress promptly within SEBI-stipulated timelines; have an adequate, expeditious procedure; product-related grievances fall to that product's regulator; disputes go through mediation/conciliation/arbitration per SEBI procedure or via Ombudsman.
Segregation of advisory & distribution:
IAs may provide implementation services to advisory clients only through direct schemes/products; no commission/referral fee/implementation fee may be received directly or indirectly at the IA's group/family level; the client is under no obligation to avail implementation services.
Act honestly, fairly, in clients' best interest and in market integrity
Due skill/care; advice after thorough analysis of available alternatives
Maintain effective resources & procedures for business activities
Seek and keep confidential financial situation, experience, objectives
Make adequate disclosure of relevant material information
Fees within SEBI ceiling, fair and reasonable
Avoid where possible; disclose & treat clients fairly when unavoidable
Meet all regulatory requirements promoting client interest & market integrity
Bears primary responsibility for conduct standards & procedures
Strengthening measures (Dec 2019 circular): restriction on free trials, proper risk profiling with client consent, fees only via banking channels, display of complaint status on the IA's website.
IAs must display the Charter on websites/offices, share it during onboarding, and publish monthly complaint data (incl. impersonation cases) by the 7th of the succeeding month.
Defaults handled per SEBI (Intermediaries) Regulations, 2008: contravention of SEBI Act/regulations/circulars, failure to furnish info, false/misleading info, non-submission of returns, non-cooperation in inspection/investigation, failure to resolve investor complaints.
Administration: A wholly-owned stock exchange subsidiary supervises/administers IAs. Eligibility of parent exchange: ≥15 years' existence, net worth ≥ Rs. 200 crore, nationwide terminals, investor grievance/arbitration mechanism, Investor Service Centres in ≥20 cities. Responsibilities: supervision (on/off-site), grievance redressal, administrative action, monitoring, periodic reporting, IA database. BSE Administration & Supervision Ltd. (BASL) has been recognised for this role.
IFSC: SEBI (IFSC) Guidelines, 2015 provide a framework for intermediaries (incl. IAs) operating in an IFSC under the SEZ Act, 2005; IA Regulations apply fully; advice limited to persons specified in Clause 9(3) of the IFSC Guidelines.
Money laundering: disguising illegally-obtained financial assets to appear legitimate. Section 3 (Chapter II) defines the offence of money-laundering — directly/indirectly attempting, assisting, or being a party to concealment, possession, acquisition, use, or projecting/claiming proceeds of crime as untainted property; this is treated as a continuing activity.
"Specified transaction" = large cash withdrawal/deposit, foreign exchange transaction, high-value imports/remittances, or any transaction prescribed due to ML/TF risk.
SEBI's AML/CFT Guidelines (under PMLA & Rules) lay down principles plus detailed procedures for all registered intermediaries (incl. branches/subsidiaries abroad, subject to local law). The KRA Regulations, 2011 establish KYC Registration Agencies — companies registered under the Companies Act and certified by SEBI — responsible for obtaining and maintaining clients' Proof of Identity & Address per SEBI/PMLA norms.
| Act | Key Purpose / Relevance to IA |
|---|---|
| FEMA, 1999 | Regulates foreign exchange, external trade, capital account transactions; governs FDI/FPI, NRI investment, remittances; Sec. 6 covers permissible capital account transactions |
| Indian Contract Act, 1872 | Foundation of all contracts — defines "contract" (Sec. 2(h)), essential elements (offer/acceptance, intent, free consent, lawful object, capacity); governs the IA-client agreement |
| Guardians and Wards Act, 1890 | Protects minors & their property; defines guardian/minor/ward; Sec. 7 & 8 govern court appointment of guardians — relevant when advising on minors' investments |
| Negotiable Instruments Act, 1881 | Defines & regulates promissory notes, bills of exchange, cheques (Sec. 4, 5, 6, 13); governs payment instruments and dishonour penalties |
| Insolvency and Bankruptcy Code, 2016 | Consolidated insolvency/bankruptcy framework for companies, LLPs, partnerships, individuals; 5 parts covering corporate & individual insolvency, insolvency professionals |
| FATCA & CRS | US/global frameworks for cross-border tax-evasion prevention; mandatory self-declarations; intermediaries upload certifications to KRA system (from 1 July 2024); Reporting Financial Institutions classify into 4 FI categories |
An entity solicited clients, gave trading tips/investment advice for fees, and held itself out as an Investment Adviser & Research Analyst on its website — without a SEBI certificate of registration (violating Reg. 2(1)(m) definition requirement).
Takeaway: Anyone conducting investment advisory activity must obtain SEBI registration. Dealing with unregistered entities deprives investors of normal remedies (grievance redressal, arbitration), putting them at serious risk.
An entity ran "free trial" sign-ups via aggressive marketing/SMS tips, then converted clients to paid plans promising lucrative short-term (4-month) returns for large fees. SEBI found the proprietor's experience certificate was forged — violating Regulation 13(a) (conditions of certificate).
Outcome: SEBI restrained the entity from the securities market and cancelled its registration.
Takeaway: Promises of exorbitant/assured returns are themselves a red flag and a regulatory violation — registered intermediaries must take utmost care to protect investor interests; submission of false documents at registration is a serious offence.
1. Under the SEBI (Investment Advisers) Regulations, 2013, the maximum penalty for non-compliance under Section 15EB of the SEBI Act is capped at:
2. An individual investment adviser must apply for registration as a non-individual investment adviser when:
3. Which regulation defines "Insider" as a connected person or one possessing/having access to Unpublished Price Sensitive Information (UPSI)?
4. As per the IA Regulations' general obligations, an investment adviser cannot enter into transactions on its own account contrary to advice given to clients for a period of:
5. Under PMLA Section 12, reporting entities must maintain client identity and account records for: