During a SEBI inspection, portfolio managers have specific obligations regarding the production of books and records. This article explains these obligations and compliance requirements.
The Regulatory Framework
Duty to Produce Records
It shall be the duty of every director, partner, officer and employee of the portfolio manager to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to his activities as a portfolio manager within such time as the inspecting authority may require.
Access to Premises
The portfolio manager shall allow the inspecting authority to have a reasonable access to the premises occupied by such portfolio manager or by any other person, on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the portfolio manager or any such other person and also provide copies of documents or other material which in the opinion of the inspecting authority are relevant for the purposes of the inspection.
Examination of Personnel
The inspecting authority shall in the course of inspection, be entitled to examine or record statements of any principal officer, director, partner and employee of the portfolio manager.
Duty to Assist
It shall be the duty of every director, partner, officer or employee of the portfolio manager to give to the inspecting authority all assistance in connection with the inspection which the portfolio manager may reasonably be expected to give.
Books and Records to Be Produced
Books of Accounts
- Balance sheet at the end of each accounting period
- Profit and loss account for each accounting period
- Auditor's report on the accounts for each accounting period
- Statement of financial position
Client Records
- Client-wise accounts
- Client agreements
- KYC documents
- Client communication records
Transaction Records
- Records of every investment transaction
- Purchase and sale records
- Trade confirmations
- Contract notes
Compliance Records
- Compliance reports
- Audit reports
- Net worth certificates
- Corporate governance reports
Records in Support of Investment Decisions
Records in support of every investment transaction or recommendation which will indicate the data, facts and opinion leading to that investment decision. Such a record shall be maintained under the hands of the Principal Officer.
Offsite Inspection Data
Quarterly Submission
Portfolio managers shall submit data as per the specified formats for all its clients on quarterly basis within 15 calendar days from end of the quarter.
Day-Wise Data
Day-wise data shall be furnished for table headings: "Client Folio AUM" and "Client Holding Master".
Applicability
Portfolio Managers shall submit data for all their clients from April 1, 2023 onwards.
Consequences of Non-Compliance
Regulatory Action
Failure to produce records or cooperate with inspection can result in:
- Enforcement action by SEBI
- Monetary penalties
- Suspension or cancellation of registration
Disciplinary Action
Non-compliance with inspection obligations may lead to disciplinary proceedings under the SEBI (Intermediaries) Regulations, 2008.
Best Practices
Organised Records
Maintain organised and easily accessible records.
Designated Contact
Designate a senior person to coordinate with the inspecting authority.
Legal Counsel
Engage legal counsel to assist with the inspection process.
Documentation
Document all interactions with the inspecting authority.
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on SEBI inspection compliance for portfolio managers. Our securities law experts help clients understand their obligations, prepare for inspections, and ensure regulatory compliance. Contact us for guidance on inspection obligations and other regulatory matters.