Research Analysts (RAs) must obtain an annual certificate from a member of ICAI, ICSI, or ICMAI confirming compliance with client-level segregation requirements. This article provides a comprehensive technical analysis of this requirement.
Regulatory Basis
The requirement for the annual certificate is specified in the circular dated January 08, 2025 (SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2025/004):
"RA shall maintain on record an annual certificate from a member of ICAI/ ICSI/ ICMAI or from an auditor (in case of individual RA)/statutory auditor (in case of a non-individual RA or research entity) confirming compliance with the client-level segregation requirements. Such annual certificate shall be obtained within six months from the end of the financial year starting from for the financial year ending March 31, 2025 and the same shall form part of compliance audit, in terms of regulation 25(3) of the RA Regulations."
Who Must Obtain the Certificate
| RA Type | Who Must Obtain Certificate | Who Can Issue Certificate |
|---|---|---|
| Individual RA | RA | Member of ICAI/ICSI/ICMAI or Auditor |
| Non-Individual RA | RA | Member of ICAI/ICSI/ICMAI or Statutory Auditor |
| Research Entity | Research Entity | Member of ICAI/ICSI/ICMAI or Statutory Auditor |
What the Certificate Must Confirm
The certificate must confirm compliance with client-level segregation requirements under Regulation 26C :
- Individual RAs: No distribution services provided.
- Family of Individual RAs: No distribution services provided to clients of the RA.
- Non-Individual RAs: Client-level segregation at group level.
- Arms-Length Relationship: Maintained between research and distribution.
- Separately Identifiable Department/Division: Research provided through separately identifiable department or division.
Timeline
| Requirement | Timeline |
|---|---|
| Obtain Certificate | Within 6 months from end of financial year |
| Financial Year Ending | March 31, 2025 onwards |
| Form Part of Compliance Audit | Yes |
Sample Certificate Format
Certificate of Compliance with Client-Level Segregation Requirements
To, [RAASB/SEBI]
I/We, [Name], being a member of the Institute of Chartered Accountants of India / Institute of Company Secretaries of India / Institute of Cost Accountants of India, have reviewed the client-level segregation practices of [Name of RA/Research Entity] for the financial year ended [Date].
I/We confirm that:
1. [Name of RA/Research Entity] has maintained client-level segregation at the family/group level as required under Regulation 26C of the SEBI (Research Analysts) Regulations, 2014.
2. [In case of Individual RA]: The individual RA has not provided distribution services. Family members have not provided distribution services to clients of the RA.
3. [In case of Non-Individual RA]: The same client has not been offered both research and distribution services within the group. An arm's length relationship has been maintained between research and distribution activities. Research services are provided through a separately identifiable department or division.
4. [Name of RA/Research Entity] has maintained PAN-based control records for all clients.
5. [Name of RA/Research Entity] has complied with all client-level segregation requirements under the RA Regulations.
This certificate is based on the review of records, processes, and procedures of [Name of RA/Research Entity].
Date: [Date] Place: [Place]
Signature: ____________________ Name: [Name] Membership Number: [Number] Designation: [Designation] Firm: [Firm Name] (if applicable)
Common Compliance Gaps
1. Not Obtaining Certificate
Some RAs fail to obtain the annual certificate.
Solution: Obtain certificate annually.
2. Delayed Certificate
Some RAs obtain the certificate after the deadline.
Solution: Obtain certificate within six months.
3. Incomplete Certificate
Some RAs obtain incomplete certificates.
Solution: Ensure certificate covers all requirements.
4. Not Including in Compliance Audit
Some RAs do not include the certificate in the compliance audit.
Solution: Include certificate in compliance audit.
Conclusion and How Anuj Desai & Associates Can Help
The annual certificate confirming client-level segregation compliance is a critical compliance obligation.
Anuj Desai & Associates offers specialized services to help RAs comply with the annual certificate requirement:
- Review of segregation practices.
- Assistance with certificate preparation.
- Compliance audit and advisory.
Contact us today to ensure your annual certificate complies with SEBI requirements. Our team will review your practices and provide a tailored compliance roadmap.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers are advised to consult qualified professionals for legal and compliance matters. Anuj Desai & Associates is a SEBI compliance consulting firm based in India.