The Most Important Terms and Conditions (MITC) require client consent. However, the requirement for consent by signature is not uniform across all client types. This article provides a comprehensive technical analysis of when MITC consent by signature is mandatory and when it is not.
Regulatory Basis
The circular dated July 23, 2025 (SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/105) on "Frequently Asked Questions (FAQs) related to regulatory provisions for Research Analysts" clarifies:
"Consent by signature on the terms and conditions including most important terms and conditions (MITC) shall not be mandatory for the clients who are institutional investors or qualified institutional buyers. However, RAs/research entities are required to disclose the terms and conditions of research services including MITC to these clients."
When Consent by Signature is Mandatory
| Client Type | Consent by Signature Required? |
|---|---|
| Individual Clients | Yes |
| HUF Clients | Yes |
| Partnership Firms | Yes |
| LLPs | Yes |
| Body Corporates (not QIB) | Yes |
| Trusts | Yes |
When Consent by Signature is Not Mandatory
| Client Type | Consent by Signature Required? |
|---|---|
| Institutional Investors | No |
| Qualified Institutional Buyers (QIBs) | No |
What is an Institutional Investor?
Definition
An institutional investor is a non-bank person or organization that trades securities in large quantities. Institutional investors include:
- Mutual funds
- Pension funds
- Insurance companies
- Banks
- Hedge funds
- Endowments
- Foundations
Examples
- Mutual funds investing on behalf of their unit holders.
- Insurance companies investing policyholder funds.
- Banks investing their own funds.
What is a QIB (Qualified Institutional Buyer)?
Definition
A Qualified Institutional Buyer (QIB) is an institutional investor with expertise and financial muscle to evaluate investment opportunities. QIBs are defined under SEBI regulations.
Categories
- Mutual funds and asset management companies.
- Pension funds.
- Insurance companies.
- Banks and financial institutions.
- Foreign institutional investors.
- Venture capital funds.
- Alternative investment funds.
- Any other institutional investor as specified by SEBI.
Rationale for the Exemption
Why Institutional Investors and QIBs are Exempt
| Reason | Description |
|---|---|
| Sophistication | Institutional investors have sophisticated investment processes. |
| Resources | They have resources to evaluate risks. |
| Expertise | They have expertise in securities markets. |
| Due Diligence | They conduct their own due diligence. |
| Negotiation Power | They have power to negotiate terms. |
What is Still Required for Institutional Investors and QIBs
| Requirement | Applicable? |
|---|---|
| Disclosure of MITC | Yes |
| Disclosure of Terms and Conditions | Yes |
| Consent by Signature | No |
| Other Compliance | Yes |
Consent Modes for Non-Exempt Clients
| Mode | Description |
|---|---|
| Physical Signature | Client signs physically |
| Electronic Signature | DigiLocker enabled Aadhaar based e-signature |
| Other Legally Acceptable Mode | As may be specified |
Consent Process
Step 1: Disclosure
RA discloses MITC and Terms and Conditions to the client.
Step 2: Client Review
Client reviews the documentation.
Step 3: Client Sign (if required)
Client signs the consent.
Step 4: Record Keeping
RA maintains the consent record.
Common Compliance Gaps
1. Requiring Signature from Institutional Investors
Some RAs incorrectly require signature from institutional investors.
Solution: Institutional investors and QIBs are exempt from signature requirement.
2. Not Disclosing MITC to Institutional Investors
Some RAs fail to disclose MITC to institutional investors.
Solution: Disclose MITC to all clients.
3. Not Maintaining Records of Disclosure
Some RAs fail to maintain records of MITC disclosure.
Solution: Maintain records of disclosure to all clients.
4. Not Updating Terms for Existing Clients
Some RAs fail to update terms for existing clients.
Solution: Update terms for all clients.
Conclusion and How Anuj Desai & Associates Can Help
Understanding when MITC consent by signature is mandatory is essential for efficient client onboarding.
Anuj Desai & Associates offers specialized services to help RAs comply with MITC consent requirements:
- Guidance on client classification.
- Assistance with MITC disclosure and consent collection.
- Compliance audit and advisory.
Contact us today to ensure your MITC consent practices comply 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.