Power of Attorney (POA) is a critical document in portfolio management services. This article explains what a POA can and cannot authorise under SEBI regulations.
What is Power of Attorney?
Definition
Power of Attorney is the power of attorney to be executed by the client in favor of the portfolio manager in the format specified by the portfolio manager.
Purpose
The POA authorises the portfolio manager to:
- Execute transactions on behalf of the client
- Manage the client's demat and bank accounts
- Carry out investment activities on a day-to-day basis
What a POA Can Authorise
Transaction Execution
The POA can authorise the portfolio manager to:
- Buy and sell securities on behalf of the client
- Execute trades in accordance with the portfolio management agreement
- Settle transactions
Account Management
The POA can authorise the portfolio manager to:
- Manage the client's demat account
- Manage the client's bank account
- Handle account-related activities
Investment Activities
The POA can authorise the portfolio manager to:
- Carry out investment activities on a day-to-day basis
- Make investment decisions (in case of discretionary PMS)
- Execute the investment strategy
Corporate Actions
The POA can authorise the portfolio manager to:
- Handle corporate actions
- Receive dividends and other benefits
- Exercise rights and entitlements
What a POA Cannot Authorise
Beyond Agreement Scope
The POA cannot authorise actions beyond the scope of the portfolio management agreement.
Client Fund Borrowing
The POA cannot authorise the portfolio manager to borrow funds on behalf of the client.
Client Asset Pledging
The POA cannot authorise the portfolio manager to pledge client assets without client consent.
Personal Use
The POA cannot authorise the portfolio manager to use client assets for personal purposes.
Investment Adviser Restrictions
Financial advisers are neither allowed to get power of attorney from their customers to manage their portfolios, nor can they charge for managing their portfolios.
Regulatory Considerations
Irrevocability
The Power of Attorney given under my/our hands is irrevocable by me/us during the tenure of my/our Portfolio account.
Binding Effect
All actions by the Portfolio Manager pursuant to the said Power of Attorney shall be binding on the client.
Client Consent
The POA must be executed with the explicit consent of the client.
Proposed Changes
Operational Relaxation
SEBI is considering operational relaxation from Power of Attorney (PoA) requirements. This may include:
- Relaxation of POA requirements for certain transactions
- Alternative authorization mechanisms
- Simplified POA processes
Consultation
Stakeholders may submit comments through SEBI's online consultation portal.
Compliance Requirements
POA Execution
- POA must be executed by the client
- POA must be in the format specified by the portfolio manager
- POA must be properly documented
POA Scope
- POA scope must be clearly defined
- POA must be consistent with the portfolio management agreement
- POA must comply with regulatory requirements
Record Keeping
- POA must be maintained as part of client records
- POA must be available for inspection
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on Power of Attorney compliance for portfolio managers. Our securities law experts help clients draft compliant POAs, understand scope limitations, and ensure regulatory compliance. Contact us for guidance on POA and other regulatory matters.