Proxy Advisers (PAs) are required to obtain registration from SEBI under the SEBI (Research Analysts) Regulations, 2014. All provisions of Chapter II, III, IV, V, and VI of the RA Regulations apply mutatis mutandis to proxy advisers. This article provides a comprehensive technical analysis of the registration and compliance requirements for PAs.
Regulatory Basis
Primary Provision: Regulation 23(1)
Regulation 23(1) provides that:
"All the provisions of Chapter II, III, IV, V and VI shall apply mutatis mutandis to the proxy adviser."
Procedural Guidelines
The circular dated August 3, 2020 (SEBI/HO/IMD/DF1/CIR/P/2020/147) specifies procedural guidelines for proxy advisers.
What is a Proxy Adviser?
Definition: Regulation 2(1)(p)
"Proxy adviser" means any person who provide advice, through any means, to institutional investor or shareholder of a company, in relation to exercise of their rights in the company including recommendations on public offer or voting recommendation on agenda items.
Registration Requirements
Who Must Register?
Any person acting as a proxy adviser must obtain registration from SEBI under the RA Regulations.
Exemptions
None. All proxy advisers must be registered.
Registration Process
Follow the same registration process as Research Analysts.
Compliance Requirements
Applicable Provisions
| Chapter | Provision | Applicability |
|---|---|---|
| II | Registration | Yes |
| III | Conflict of Interest | Yes |
| IV | Inspection | Yes |
| V | Default Action | Yes |
| VI | Miscellaneous | Yes |
Key Compliance Areas
- Registration
- Qualification and certification
- Conflict of interest management
- Trading restrictions
- Compensation restrictions
- Publication restrictions
- Disclosure requirements
- Inspection
- Record keeping
Specific Requirements for Proxy Advisers
1. Qualification
Employees of proxy advisors engaged in providing proxy advisory services shall be required to have a minimum qualification of being a graduate in any discipline.
2. Certification
Certification requirements for employees of proxy advisors engaged in providing proxy advisory services shall be as specified by the Board.
3. Capital Adequacy
Time period for compliance with capital adequacy for proxy advisors shall be three years.
Additional Disclosures
Proxy advisers shall additionally disclose:
-
The extent of research involved in a particular recommendation and the extent and/or effectiveness of its controls and procedures in ensuring the accuracy of issuer data.
-
Policies and procedures for interacting with issuers, informing issuers about the recommendation and review of recommendations.
Record Keeping
Proxy advisers shall maintain the record of his voting recommendations and furnish the same to SEBI on request.
Common Compliance Gaps
1. Not Registering
Some entities acting as proxy advisers are not registered.
Solution: Register under the RA Regulations.
2. Not Complying with RA Regulations
Some PAs do not comply with RA Regulations.
Solution: Comply with all applicable provisions.
3. Not Making Additional Disclosures
Some PAs do not make required additional disclosures.
Solution: Make all required additional disclosures.
4. Not Maintaining Records
Some PAs do not maintain records of voting recommendations.
Solution: Maintain records of all voting recommendations.
Consequences of Non-Compliance
1. Regulatory Action
SEBI may take action for non-compliance.
2. Monetary Penalties
SEBI may impose monetary penalties.
3. Suspension or Cancellation
SEBI may suspend or cancel registration.
Conclusion and How Anuj Desai & Associates Can Help
Proxy advisers must comply with the RA Regulations and additional specific requirements.
Anuj Desai & Associates offers specialized services to help PAs comply with registration and compliance requirements:
- Registration assistance
- Compliance advisory
- Disclosures review
- Record keeping guidance
- Compliance audit and advisory
Contact us today to ensure your proxy adviser compliance is in order. Our team will guide you through the process.
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.