MASTER CIRCULAR
SEBI/HO/MIRSD-PoD-2/P/CIR/2023/90 June 15, 2023
To,
All Research Analysts registered with Securities and Exchange Board of India
Dear Madam / Sir,
Subject: Master Circular for Research Analysts
1. Securities and Exchange Board of India (SEBI), from time to time, has been
issuing various circulars/directions to Research Analysts (RAs). In order to enable
users to have access to the applicable circulars at one place, this Master Circular
in respect of RAs is being issued.
2. The Master Circular is a compilation of all the existing/ applicable circulars issued
by SEBI pertaining to Research Analysts.
3. The list of SEBI circulars compiled in this Master Circular is given in Appendix at
the end of this Master Circular. From the date of issuance of this Master Circular,
the circulars mentioned in Appendix stand rescinded, to the extent applicable to
Research Analysts.
4. Notwithstanding such rescission,
a) Anything done or any action taken or purported to have been done or taken
under the rescinded circulars, prior to such rescission, shall be deemed to
have been done or taken under the corresponding provisions of this Master
Circular;
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b) Any application made to the Board under the rescinded circulars, prior to such
rescission, and pending before it shall be deemed to have been made under
the corresponding provisions of this Master Circular;
c) The previous operation of the rescinded circulars or anything duly done or
suffered thereunder, any right, privilege, obligation or liability acquired,
accrued or incurred under the rescinded circulars, any penalty, incurred in
respect of any violation committed against the rescinded circulars, or any
investigation, legal proceeding or remedy in respect of any such right,
privilege, obligation, liability, penalty as aforesaid, shall remain unaffected as
if the rescinded circulars have never been rescinded.
5. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
6. This circular is available on SEBI website at www.sebi.gov.in .
Yours faithfully
Srishti Ambokar
Deputy General Manager
Tel. No. 022-26449354
srishtijc@sebi.gov.in
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TABLE OF CONTENTS
Sr. Subject Page
No. No.
I. GUIDELINES FOR RESEARCH ANALYSTS
1. P rocedural Guidelines for Proxy Advisors 5
II. INVESTOR COMPLAINTS
2. G rievance Resolution between listed entities and proxy advisers 7
3. R edressal of investor grievances through SEBI Complaints Redress 8
system (SCORES) Platform
4. P ublishing of Investor Charter and disclosure of Investor Complaints 9
by Research Analysts on their websites/ mobile applications
III. TECHNOLOGY RELATED
5. A dvisory for Financial Sector Organizations regarding Software as a 10
Service (SaaS) based solutions
IV. MISCELLANEOUS
6. P rocedure for seeking prior approval for change in control 11
7. A dvertisement code and usage of brand name/trade name 14
8. U nauthenticated news circulated by SEBI Registered Market 20
Intermediaries through various modes of communication
9. G uidelines on outsourcing of activities by Intermediaries 21
10. F ramework for Regulatory Sandbox 23
11. G eneral Guidelines for dealing with Conflicts of Interest of 23
Intermediaries and their Associated Persons in Securities Market
12. A pproach to securities market data access and terms of usage of data 26
provided by data sources in Indian securities market
13. R eporting Requirements under Foreign Account Tax Compliance Act 26
(FATCA)
14. G uidelines on Anti-Money Laundering (AML) Standards and 27
Combating the Financing of Terrorism (CFT) /Obligations of Securities
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Sr. Subject Page
No. No.
Market Intermediaries under the Prevention of Money Laundering Act,
2002 and Rules framed there under
V. REPORTING REQUIREMENTS 28
VI. ANNEXURES 30
15. A NNEXURE A - Investor Charter In respect of RAs 30
16. A NNEXURE B - Complaint Data to be displayed by RAs 33
17. A NNEXURE C - Advisory for Financial Sector Organizations Software 35
as a Service (SaaS) based solution
18. A NNEXURE D - Declaration cum undertaking for seeking prior 37
approval for change in control
19. A NNEXURE E - Principles for outsourcing for intermediaries 39
VII. APPENDIX : List of Circulars/ Notifications/Communications 46
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I. GUIDELINES FOR RESEARCH ANALYSTS
1. Procedural Guidelines for Proxy Advisors1
1.1 Regulation 24(2) read with regulation 23(1) of the Securities and Exchange
Board of India (Research Analyst) Regulations, 2014 (‘the Regulations’)
mandates proxy advisors to abide by Code of Conduct specified therein. It is
decided that proxy advisors shall also comply with the following procedural
guidelines:
a) Proxy Advisors shall formulate the voting recommendation policies and
disclose the updated voting recommendation policies to its clients. Proxy
Advisors shall ensure that the policies should be reviewed at least once
annually. The voting recommendation policies shall also disclose the
circumstances when not to provide a voting recommendation.
b) Proxy Advisors shall disclose the methodologies and processes followed
in the development of their research and corresponding
recommendations to its clients.
c) Proxy Advisors shall alert clients, within 24 hours of receipt of
information, about any factual errors and any impending material
revisions to their reports. Further, any such material revisions to their
reports shall be communicated to the clients within 72 hours of receipt
of the information, while ensuring that adequate time is available for
clients to make an informed decision.2
d) Proxy Advisors shall have a stated process to communicate with its
clients and the company.
1 Reference: Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/147 dated August 03, 2020
2 Reference: Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/256 dated December 31, 2020.
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e) Proxy Advisors shall share their report with its clients and the company
at the same time. This sharing policy should be disclosed by proxy
advisors on their website. Timeline to receive comments from company
may be defined by proxy advisors and all comments/clarifications
received from the company, within timeline, shall be included as an
addendum to the report. If the company has a different viewpoint on the
recommendations stated in the report of the proxy advisors, then proxy
advisors, after taking into account the said viewpoint, may either revise
the recommendation in the addendum report or issue an addendum to
the report with its remarks, as considered appropriate.
f) Proxy Advisors shall clearly disclose in their recommendations the legal
requirement vis-a-vis higher standard they are suggesting if any, and the
rationale behind the recommendation of higher standards.
g) Proxy Advisors shall disclose conflict of interest on every specific
document where they are giving their advice. Further, the disclosures
should especially address possible areas of potential conflict and the
safeguards that have been put in place to mitigate possible conflicts of
interest.
h) Proxy Advisors shall establish clear procedures to disclose, manage
and/or mitigate any potential conflicts of interest resulting from other
business activities including consulting services, if any, undertaken by
them and disclose the same to clients.
1.2 The provisions of Clause 1.1(c) and 1.1(e) became applicable with effect
from February 01, 2021.3 All other provisions of clause 1.1 became
applicable with effect from January 01, 2021.4
3 Reference: Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/157 dated August 27, 2020 and Circular No.
SEBI/HO/IMD/DF1/CIR/P/2020/256 dated December 31, 2020
4 Reference: Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/157 dated August 27, 2020.
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II. INVESTOR COMPLAINTS
2. Grievance Resolution between listed entities and proxy advisers5
2.1 Regulation 4(2)(a) of the Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR
Regulations’) casts certain obligations on listed entities to protect and
facilitate the exercise of the rights of shareholders, including:
a) right to participate in, and to be sufficiently informed of, decisions
concerning fundamental corporate changes,
b) opportunity to participate effectively and vote in general shareholder
meetings,
c) effective shareholder participation in key corporate governance
decisions, such as the nomination and election of members of board of
directors and
d) exercise of ownership rights by all shareholders, including institutional
investors.
2.2 Proxy advisors, over the past few years, have played a key role in enabling
shareholders to effectively participate in corporate governance decisions
and thus, furthering the achievement of the above objectives. Proxy advisors
provide advice to institutional investors / shareholders of a listed entity, in
relation to exercise of their rights in the company including voting
recommendation on agenda items. However, due to the inherent nature of
the work, it is probable that proxy advisors and listed entities may have
different views on any agenda item of the listed entity leading to grievances.
2.3 In order to facilitate resolution of such grievances of listed entities against
SEBI registered proxy advisors, the listed entities may approach SEBI. SEBI
will examine the matter for non-compliance by proxy advisors with the
5 Reference: Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/119 dated August 04, 2020
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provisions of the Code of Conduct under regulation 24(2) read with
regulation 23(1) of the Regulations and the procedural guidelines for proxy
advisors as mentioned at clause 1.1.
2.4 The provisions under this clause became applicable with effect from January
01, 2021.6
3. Redressal of investor grievances through SEBI Complaints Redress system
(SCORES) Platform7
3.1. SEBI has been taking various measures to create awareness among
investors about grievance mechanisms available to them through workshops
as well as through print and electronic media.
3.2. As an additional measure and for information of all investors who deal/
invest/ transact in the market, the research analysts shall prominently display
in their offices the following information about the grievance redressal
mechanism available to investors.
Dear Investor,
In case of any grievance / complaint against the research analyst:
• Please contact Compliance Officer of the research analyst (Name and
Address) / email-id (xxx.@email.com) and Phone No. - 91- XXXXXXXXXX.
• You may also approach CEO / Partner / Proprietor (Name) / email- id
(xxx.@email.com) and Phone No. - 91-XXXXXXXXXX.
6 Reference: Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/159 dated August 27, 2020.
7 Reference: Circular No. CIR/MIRSD/3/2014 dated August 28, 2014 and
SEBI/HO/OIAE/IGRD/P/CIR/2022/0150 dated November 07, 2022
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• If not satisfied with the response of the research analyst you can lodge your
grievances with SEBI at http://scores.gov.in or you may also write to any of
the offices of SEBI. For any queries, feedback or assistance, please contact
SEBI Office on Toll Free Helpline at 1800 22 7575 / 1800 266 7575.
3.3. Research analysts are also advised to refer to Master Circular reference no.
SEBI/HO/OIAE/IGRD/P/CIR/2022/0150 dated November 07, 2022 issued by
SEBI on the redressal of investor grievances through the SEBI Complaints
Redress System (SCORES) platform at the following link:
https://www.sebi.gov.in/legal/master-circulars/nov-2022/master-circular-on-
the-redressal-of-investor-grievances-through-the-sebi-complaints-redress-
system-scores-platform_64742.html
4. Publishing of Investor Charter and disclosure of Investor Complaints by
Research Analysts on their websites/mobile applications8
4.1. In order to facilitate investor awareness about various activities which an
investor deals with while availing the services provided by research analysts,
SEBI has developed an Investor Charter for Research Analysts. This Charter
is a brief document containing details of services provided to investors, their
rights, dos and don’ts, responsibilities, investor grievance handling
mechanism and estimated timelines thereof etc., at one single place, in a
lucid language, for ease of reference.
4.2. All registered Research Analysts are advised to bring to the notice of their
clients the Investor Charter as provided at Annexure A by prominently
displaying on their websites and mobile applications. Research Analysts not
having websites/mobile applications shall, as a one-time measure, send
Investor Charter to the investors on their registered e-mail address.
8 Reference: Circular No. SEBI/HO/IMD/IMD-II CIS/P/CIR/2021/0685 dated December 13, 2021
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4.3. Additionally, in order to enhance transparency in grievance redressal,
Research Analyst (RA) shall disclose on their websites/mobile applications,
all complaints including SCORES complaints received by them in the format
mentioned in Annexure B on a monthly basis. The information shall be made
available by 07th of the succeeding month. Research Analysts not having
websites/mobile applications shall send status of Investor Complaints to the
investors on their registered email on a monthly basis.
4.4. Further, Research Analysts are advised to display link/option to lodge
complaint with them directly on their websites and mobile apps. Additionally,
link to SCORES website/ link to download mobile app (SEBI SCORES) may
also be provided.
4.5. The disclosure requirements under this clause came into effect from January
01, 2022.
III. TECHNOLOGY RELATED
5. Advisory for Financial Sector Organizations regarding Software as a Service
(SaaS) based solutions9
5.1 Ministry of Electronics & Information Technology, Govt. of India (‘MEITy’),
has informed SEBI that the financial sector institutions are availing or
thinking of availing Software as a Service (SaaS) based solution for
managing their Governance, Risk & Compliance (GRC) functions so as to
improve their cyber Security Posture. As observed by MEITy, though SaaS
may provide ease of doing business and quick turnaround, but it may bring
significant risk to health of financial sector as many a time risk and
9 Reference: Circular No. SEBI/HO/MIRSD2/DOR/CIR/P/2020/221 dated November 03, 2020
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compliance data of the institution moves beyond the legal and jurisdictional
boundary of India due to nature of shared cloud SaaS, thereby posing risk
to the data safety and security.
5.2 In this regard, Indian Computer Emergency Response Team (CERT-in) has
issued an advisory for Financial Sector organizations. The advisory has been
forwarded to SEBI for bringing the same to the notice of financial sector
organization. The advisory can be viewed at Annexure C.
5.3 It is advised to ensure complete protection and seamless control over the
critical systems at your organizations by continuous monitoring through
direct control and supervision protocol mechanisms while keeping the critical
data within the legal boundary of India.
5.4 The compliance of the advisory shall be reported half yearly by research
analysts to SEBI with an undertaking, “Compliance of the SEBI circular for
Advisory for Financial Sector Organizations regarding Software as a Service
(SaaS) based solutions has been made.”
IV. MISCELLANEOUS
6. Procedure for seeking prior approval for change in control10
6.1 Regulation 24(3) of the Regulations provide that research analyst or
research entity shall obtain prior approval of SEBI in case of change in
control.
6.2 To streamline the process of providing approval to the proposed change in
10 Reference: Circular No. SEBI/HO/MIRSD/ MIRSD-PoD-2/P/CIR/2022/163 dated November 28, 2022
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control of research analyst or research entity (hereinafter referred as
intermediary or applicant), it has been decided as under:
i) The Intermediary shall make an online application to SEBI for prior
approval through the SEBI Intermediary Portal (‘SI Portal’)
(https://siportal.sebi.gov.in).
ii) The online application in SI portal shall be accompanied by the following
information/declaration/undertaking about itself, the acquirer(s)/the
person(s) who shall have the control and the directors/partners of the
acquirer(s)/ the person(s) who shall have the control:
a. Current and proposed shareholding pattern of the applicant.
b. Whether any application was made in the past to SEBI seeking
registration in any capacity but was not granted? If yes, details
thereof.
c. Whether any action has been initiated / taken under Securities
Contracts (Regulation) Act, 1956 (SCRA)/Securities and Exchange
Board of India Act, 1992 (SEBI Act) or rules and regulations made
thereunder? If yes, the status thereof along with the corrective action
taken to avoid such violations in the future. The acquirer/ the person
who shall have the control shall also confirm that it shall honour all
past liabilities / obligations of the applicant, if any.
d. Whether any investor complaint is pending? If yes, steps taken and
confirmation that the acquirer/ the person who shall have the control
shall resolve the same.
e. Details of litigation(s), if any.
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f. Confirmation that all the fees due to SEBI have been paid.
g. Declaration cum undertaking of the applicant and the acquirer/ the
person who shall have the control (in a format enclosed at Annexure
D), duly stamped and signed by their authorized signatories that:
(i) there will not be any change in the Board of Directors of
incumbent, till the time prior approval is granted;
(ii) pursuant to grant of prior approval by SEBI, the incumbent
shall inform all the existing investors/ clients about the
proposed change prior to effecting the same, in order to enable
them to take informed decision regarding their continuance or
otherwise with the new management; and
(iii) the ‘fit and proper person’ criteria as specified in Schedule II of
SEBI (Intermediaries) Regulations, 2008 are complied with.
h. In case the incumbent is a registered stock broker, clearing member,
depository participant, in addition to the above, it shall obtain
approval/NOC from all the stock exchanges/clearing corporations/
depositories, where the incumbent is a member/depository
participant and submit self-attested copy of the same to SEBI.
iii) The prior approval granted by SEBI shall be valid for a period of six
months from the date of such approval within which the applicant shall
file application for fresh registration pursuant to change in control.
6.3 To streamline the process of providing approval to the proposed change in
control of an intermediary in matters which involve scheme(s) of
arrangement which needs sanction of the National Company Law Tribunal
(NCLT) in terms of the provisions of the Companies Act, 2013, the following
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has been decided:
i) The application seeking approval for the proposed change in control of
the intermediary shall be filed with SEBI prior to filing the application with
NCLT.
ii) Upon being satisfied with compliance of the applicable regulatory
requirements, an in-principle approval will be granted by SEBI;
iii) The validity of such in-principle approval shall be three months from the
date issuance, within which the relevant application shall be made to
NCLT.
iv) Within 15 days from the date of order of NCLT, the intermediary shall
submit an online application in terms of clause 5.2 along with the
following documents to SEBI for final approval:
a. Copy of the NCLT Order approving the scheme;
b. Copy of the approved scheme;
c. Statement explaining modifications, if any, in the approved scheme
vis-à-vis the draft scheme and the reasons for the same; and
d. Details of compliance with the conditions/ observations, if any,
mentioned in the in-principle approval provided by SEBI.
7. Advertisement code and usage of brand name/trade name 11
7.1. Research Analysts shall ensure compliance with the advertisement code as
11 Reference: Circular Nos. SEBI/HO/MIRSD/ MIRSD-PoD-2/P/CIR/2023/51 dated April 05, 2023 and
SEBI/HO/MIRSD/ MIRSD-PoD-2/P/CIR/2023/52 dated April 06, 2023
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prescribed below:
a. Forms of communication:
i. Advertisement shall include all forms of communications, issued by
or on behalf of RA, that may influence investment decisions of any
investor or prospective investor.
ii. The forms of communications, to which the advertisement code shall
be applicable, shall include pamphlets, circulars, brochures,
notices, research reports or any other literature, document,
information or material published, or designed for use in any
publication or displays (such as newspaper, magazine, sign
boards/hoardings at any location), in any electronic, wired or
wireless communication (such as electronic mail, text messaging,
messaging platforms, social media platforms, radio, telephone, or in
any other form over the internet) or over any other audio-visual form
of communication (such as television, tape recording, video tape
recordings, motion pictures) or in any other manner whatsoever.
b. Information/disclosures in the advertisement:
The information/disclosures that the advertisement shall contain, include
the following-
i. Name of the RA as registered with SEBI, registered office address,
SEBI Registration No., logo/brand name/trade name of RA, and CIN
of the RA, if applicable.
ii. Information which is accurate, true and complete in unambiguous
and concise language.
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iii. Standard warning in legible fonts (minimum 10 font size) which
states “Investment in securities market are subject to market risks.
Read all the related documents carefully before investing.”. No
addition or deletion of words shall be made to/from the standard
warning.
iv. In audio-visual media based advertisements, the standard warning
in visual media based advertisement and accompanying voice over
reiteration shall be audible in a clear and understandable manner.
For example, in standard warning both the visual and the voice over
reiteration containing 20 words running for at least 10 seconds may
be considered as clear and understandable.
v. Whenever the advertisement is being issued in a language other
than English, it will be ensured that the standard warning is
accurately translated in the language of the advertisement.
vi. In case the mode of advertisement is SMS/Message/Pop-up, social
media etc. and the details such as full name, logo/brand name, full
registered office address, SEBI registration number, membership
number of a SEBI recognized supervisory body, if any and standard
disclaimer are not mentioned, then official website hyperlink should
be provided in such SMS/Message/Pop-up, etc. and the website
must contain all such details.
vii. In case any specific security/securities are displayed in the
advertisement as examples, disclaimer that "The securities quoted
are for illustration only and are not recommendatory" should be
mentioned.
viii. Advertisements and communications/correspondences with clients
shall include the disclaimer that “Registration granted by SEBI,
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membership of a SEBI recognized supervisory body (if any) and
certification from NISM in no way guarantee performance of the
intermediary or provide any assurance of returns to investors.”
c. Prohibitions in the advertisement:
The advertisement shall not contain:
i. Anything which is prohibited for publication under the law.
ii. Statements which are false, misleading, biased or deceptive, based
on assumptions or projections.
iii. Any misleading or deceptive testimonials.
iv. Statements which, directly or by implication or by omission, may
mislead the investor.
v. Any statement likely to be misunderstood or likely to disguise the
significance of the same or any other statement contained in the
advertisement.
vi. Any statement designed to exploit the lack of experience or
knowledge of the investors.
vii. Any statement that is exaggerated or is inconsistent with or
unrelated to the nature and risk and return profile of the product.
viii. Extensive use of technical or legal terminology or complex language
and the inclusion of excessive details which may distract the
investors.
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ix. Reference to any report, analysis, or service as free, unless it
actually is free and without condition or obligation.
x. Any promise or guarantee of assured or risk free return to the
investors.
The advertisement shall not imply any assured returns or minimum
returns or target return or percentage accuracy or service provision
till achievement of target returns or any other nomenclature that
gives the impression to the client that the recommendation of
research report is risk-free and/or not susceptible to market risks
and/or that it can generate returns with any level of assurance.
xi. Any statement which directly or indirectly discredits other
advertisements or intermediaries or makes unfair comparisons or
ascribes any qualitative advantage over other intermediaries directly
or indirectly.
xii. Reference to past performance of the RA.
xiii. Superlative terms such as “Best”, “No. 1”, Top Research Analyst,
“Leading”, “One of the best amongst market leaders”, etc. so as to
provide any endorsement of quality or standing of the RA. However,
factual details of awards received by the RA from independent
organizations may be included.
xiv. Advertisements shall not include SEBI Logo.
d. Other compliances/requirements:
i. Prior approval for the advertisement/material shall be obtained from
SEBI recognized supervisory body, if any, before issue.
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ii. In the event of suspension of any RA by SEBI, the RA so suspended
shall not issue any advertisement either singly or jointly with any
other RA, during the period of suspension.
iii. The RA shall not engage in games, leagues, schemes, competitions
etc. which may involve distribution of prize monies, medals, gifts,
etc.
iv. These norms shall be applicable to any other investment/ research/
consultancy agency associated with the RA concerned and issuing
advertisement wherein the RA has been named in the
advertisement.
v. Copy of the advertisement shall be retained by RA for a period of
five years in terms of Regulation 25 (2) of SEBI (Research Analysts)
Regulations, 2014.
vi. Any additional guidelines as may be specified by SEBI or SEBI
recognized supervisory body, if any, from time to time.
7.2. In order to ensure the transparency in usage of brand name/trade name/logo,
RA shall ensure that:
i. The information such as name of the RA as registered with SEBI, its
logo, its registration number and its complete address with telephone
numbers shall be prominently displayed on portal/web site, if any, notice
board, display boards, advertisements, publications, know your client
forms and client agreements, if any.
ii. The information such as name of the RA as registered with SEBI, its
logo, its registration number, its complete address with telephone
numbers, the name of the compliance officer, his telephone number
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and e-mail address, the name, telephone number and e-mail
address of the grievance officer or the grievance redressal cell shall be
displayed prominently in statements or reports or any other form of
correspondence with the client.
iii. Disclaimer that “Registration granted by SEBI and certification from
NISM in no way guarantee performance of the intermediary or provide
any assurance of returns to investors” shall be mentioned on portal/web
site, if any, notice board, display boards, advertisements, publications,
know your client forms, client agreements, if any, statements or reports
or any other form of correspondence with the client.
iv. SEBI logo shall not be used by RA.
7.3. The aforesaid provisions on advertisement code and usage of brand name/
trade name became applicable with effect from May 01, 2023.
8. Unauthenticated news circulated by SEBI Registered Market Intermediaries
through various modes of communication12
8.1. Due to lack of proper internal controls and poor training, employees of
intermediaries are sometimes not aware of the damage which can be caused
by circulation of unauthenticated news or rumours. It is a well established
fact that market rumours can do considerable damage to the normal
functioning and behaviour of the market and distort the price discovery
mechanisms.
8.2. In view of the above facts, SEBI Registered Market Intermediaries are
directed that:
12 Reference: Circular No. CIR/ISD/1/2011 dated March 23, 2011
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a. Proper internal code of conduct and controls should be put in place.
b. Employees/temporary staff/voluntary workers etc. employed/working in
the Offices of market intermediaries do not encourage or circulate
rumours or unverified information obtained from client, industry, any
trade or any other sources without verification.
c. Access to Blogs/Chat forums/Messenger sites etc. should either be
restricted under supervision or access should not be allowed.
d. Logs for any usage of such Blogs/Chat forums/Messenger sites (called
by any nomenclature) shall be treated as records and the same should
be maintained as specified by the respective Regulations which govern
the concerned intermediary.
e. Employees should be directed that any market related news received by
them either in their official mail/personal mail/blog or in any other
manner, should be forwarded only after the same has been seen and
approved by the concerned Intermediary’s Compliance Officer. If an
employee fails to do so, he/she shall be deemed to have violated the
various provisions contained in SEBI Act/Rules/Regulations etc. and
shall be liable for action. The Compliance Officer shall also be held liable
for breach of duty in this regard13.
9. Guidelines on Outsourcing of Activities by Intermediaries14
9.1. SEBI Regulations for various intermediaries require that they shall render at
all times high standards of service and exercise due diligence and ensure
proper care in their operations.
13 Circular No. CIR/ISD/2/2011 dated March 24, 2011.
14 Circular No. CIR/MIRSD/24/2011 dated December 15, 2011.
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9.2. It has been observed that often the intermediaries resort to outsourcing with
a view to reduce costs, and at times, for strategic reasons.
9.3. Outsourcing may be defined as the use of one or more than one third party
– either within or outside the group - by a registered intermediary to perform
the activities associated with services which the intermediary offers.
9.4. Principles for Outsourcing
a. The risks associated with outsourcing may be operational risk,
reputational risk, legal risk, country risk, strategic risk, exit-strategy risk,
counter party risk, concentration and systemic risk. The principles for
outsourcing are given below in Annexure E.
9.5. Activities that shall not be Outsourced:
a. The intermediaries desirous of outsourcing their activities shall not,
however, outsource their core business activities and compliance
functions. An example of core business activity may be – execution of
orders and monitoring of trading activities of clients in case of stock
brokers. Regarding Know Your Client (KYC) requirements, the
intermediaries shall comply with the provisions of SEBI {KYC (Know
Your Client) Registration Agency} Regulations, 2011 and Guidelines
issued thereunder from time to time.
9.6. Other Obligations:
Reporting to Financial Intelligence Unit (FIU) - The intermediaries shall
be responsible for reporting of any suspicious transactions / reports to FIU
or any other competent authority in respect of activities carried out by the
third parties.
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10. Framework for Regulatory Sandbox15
10.1. The Objective of Regulatory Sandbox is to grant certain facilities and
flexibilities to the entities regulated by SEBI so that they can experiment with
FinTech solutions in a live environment and on limited set of real users for a
limited time frame.
10.2. The guidelines pertaining to the functioning of the Regulatory Sandbox are
provided vide SEBI Circular No. SEBI/HO/ITD/ITD/CIR/P/2021/575 dated
June 14, 2021 and SEBI/HO/MIRSD/MIRSD_IT/P/CIR/2021/0000000658
dated November 16, 2021 which are available at the link below:
https://www.sebi.gov.in/legal/circulars/jun-2021/revised-framework-for-
regulatory-sandbox_50521.html and
https://www.sebi.gov.in/legal/circulars/nov-2021/framework-for-regulatory-
sandbox_53982.html
11. General Guidelines for dealing with Conflicts of Interest of intermediaries
and their Associated Persons in Securities Market.16
11.1. All intermediaries are presently governed by the provisions for avoidance of
conflict of interest as mandated in the regulations read with relevant circulars
issued from time to time by SEBI. On the lines of Principle 8 of the
International Organisation of Securities Commissions (IOSCO) Objectives
and Principles of Securities Regulations, it has been decided to put in place
comprehensive guidelines to collectively cover such intermediaries, for
elimination of their conflict of interest, as detailed hereunder.
11.2. Intermediaries shall adhere to these guidelines for avoiding or dealing with
or managing conflict of interest. They shall be responsible for educating their
15 Reference: Circular No. SEBI/HO/ITD/ITD/CIR/P/2021/575 dated June 14, 2021 and
SEBI/HO/MIRSD/MIRSD_IT/P/CIR/2021/0000000658 dated November 16, 2021
16 Reference: Circular CIR/MIRSD/5/2013 dated August 27, 2013.
Page 23 of 47
associated persons for compliance of these guidelines.
11.3. For the purpose of these guidelines "associated persons" shall have the
same meaning as defined in Securities and Exchange Board of India
(Certification of Associated Persons in the Securities Markets) Regulations,
2007.
11.4. Intermediaries and their associated persons shall,
a. lay down, with active involvement of senior management, policies and
internal procedures to identify and avoid or to deal or manage actual or
potential conflict of interest, develop an internal code of conduct
governing operations and formulate standards of appropriate conduct in
the performance of their activities, and ensure to communicate such
policies, procedures and code to all concerned;
b. at all times maintain high standards of integrity in the conduct of their
business;
c. ensure fair treatment of their clients and not discriminate amongst them;
d. ensure that their personal interest does not, at any time conflict with their
duty to their clients and client’s interest always takes primacy in their
advice, investment decisions and transactions;
e. make appropriate disclosure to the clients of possible source or potential
areas of conflict of interest which would impair their ability to render fair,
objective and unbiased services;
f. endeavor to reduce opportunities for conflict through prescriptive
measures such as through information barriers to block or hinder the
flow of information from one department/ unit to another, etc.;
Page 24 of 47
g. place appropriate restrictions on transactions in securities while handling
a mandate of issuer or client in respect of such security so as to avoid
any conflict;
h. not deal in securities while in possession of material non published
information;
i. not to communicate the material non published information while dealing
in securities on behalf of others;
j. not in any way contribute to manipulate the demand for or supply of
securities in the market or to influence prices of securities;
k. not have an incentive structure that encourages sale of products not
suiting the risk profile of their clients;
l. not share information received from clients or pertaining to them,
obtained as a result of their dealings, for their personal interest;
11.5. The Boards of intermediaries shall put in place systems for implementation
of the aforementioned guidelines and provide necessary guidance enabling
identification, elimination or management of conflict of interest situations.
The Boards shall review the compliance of the above guidelines periodically.
11.6. The said guidelines shall be in addition to the provisions, if any, contained in
respective regulations/ circulars issued by the Board from time to time
regarding dealing with conflict of interest, in respect of intermediaries.
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12. Approach to securities market data access and terms of usage of data
provided by data sources in Indian securities market17
12.1. Research Analysts are advised to make note of the following:
“As far as the data provided by various data sources in Indian securities
markets pursuant to regulatory mandates for reporting and disclosure in
public domain are concerned, such data should be made available to users,
‘free of charge’ both for ‘viewing’ the data as also for download in the format
as specified by regulatory mandate for reporting, as well as their usage for
the value addition purposes.”
12.2. Further, apart from the data made available free of cost, data which is
chargeable should be appropriately identified as such in public domain.
13. Reporting Requirements under Foreign Account Tax Compliance Act18
13.1. India joined the Multilateral Competent Authority Agreement (MCAA) on
Automatic Exchange of Financial Account Information on June 03, 2015. In
terms of the MCAA, all countries which are signatory to MCAA, are obliged
to exchange a wide range of financial information after collecting the same
from financial institutions in their country / jurisdiction.
13.2. On July 09, 2015, the Governments of India and United States of America
(USA) signed an agreement to improve international tax compliance and to
implement the Foreign Account Tax Compliance Act (FATCA) in India. The
USA enacted FATCA in 2010 to obtain information on accounts held by US
taxpayers in other countries. As per the aforesaid agreement, foreign
financial institutions (FFIs) in India will be required to report tax information
17 Reference: Circular SEBI/HO/DEPA-III/DEPA-III_SSU/P/CIR/2022/25 dated Feb 25,2022
18 Reference: Circular CIR/MIRSD/2/2015 dated August 26, 2015 and Circular CIR/MIRSD/3/2015
dated September 10, 2015.
Page 26 of 47
about US account holders / taxpayers directly to the Indian Government
which will, in turn, relay that information to the U.S. Internal Revenue Service
(IRS).
13.3. For implementation of the MCAA and agreement with USA, the Government
of India has made necessary legislative changes to Section 285BA of the
Income Tax Act, 1961. Further, the Government of India has notified Rules
114F to 114H (herein after referred to as “the Rules”) under the Income Tax
Rules, 1962 and form No. 61B for furnishing of statement of reportable
account specified in the Rules. The Rule is presently available at the
following link:
http://www.incometaxindia.gov.in/communications/notification/notification%
20no.%2062%20dated%2007-08-2015.pdf
13.4. A “Guidance Note on implementation of Reporting Requirements under
Rules 114F to 114H of the Income Tax Rules” as issued by the Department
of Revenue, Ministry of Finance vide F.No.500/137/2011-FTTR-III dated
August 31, 2015 is available at
http://www.incometaxindia.gov.in/communications/notification/guidance_not
es_on_im plementation_31_08_2015.pdf, for information and necessary
action.
13.5. Research Analysts shall take necessary steps to ensure compliance with the
requirements specified in the aforesaid Rules after carrying out necessary
due diligence.
14. Guidelines on Anti-Money Laundering (AML) Standards and Combating the
Financing of Terrorism (CFT) /Obligations of Securities Market
Intermediaries under the Prevention of Money Laundering Act, 2002 and
Rules framed there under
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Research Analysts are advised to refer to SEBI’s Master Circular bearing
reference no. SEBI/HO/MIRSD/MIRSD-SEC-5/P/CIR/2023/022 issued on
February 03, 2023 with respect to ‘Guidelines on Anti-Money Laundering (AML)
Standards and Combating the Financing of Terrorism (CFT) /Obligations of
Securities Market Intermediaries under the Prevention of Money Laundering Act,
2002 and Rules framed there under’ available at the following link:
https://www.sebi.gov.in/legal/master-circulars/feb-2023/guidelines-on-anti-
money-laundering-aml-standards-and-combating-the-financing-of-terrorism-cft-
obligations-of-securities-market-intermediaries-under-the-prevention-of-money-
laundering-act-2002-a-_67833.html
V. REPORTING REQUIREMENTS
1. Complaint Data to be displayed by RAs on their website/ mobile application
by 07th of the succeeding month:
Formats for investors complaints data to be disclosed monthly by RAs on their
website/mobile application:
Data for the month ending -_____________
Sr. Received Pending Recei Resolv Total Pending Average
No. from at the ved ed * Pending complaints Resolution
end of # > 3months time^ (in
last days)
month
1 Directly
from
Investors
2 SEBI
(SCORES)
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3 Other
Sources (if
any)
Grand
Total
*Inclusive of complaints of previous months resolved in the current month.
#Inclusive of complaints pending as on the last day of the month.
^ Average Resolution time is the sum total of time taken to resolve each complaint in days, in
the current month divided by total number of complaints resolved in the current month.
Trend of monthly disposal of complaints
Sr. Month Carried forward from Received Resolved* Pending#
No. previous month
1 April, YYYY
2 May, YYYY
3 June, YYYY
4 ……………..
5 March, YYYY
Grand Total
*Inclusive of complaints of previous months resolved in the current month.
#Inclusive of complaints pending as on the last day of the month.
Trend of annual disposal of complaints
Sr. Year Carried forward Received Resolved* Pending#
No. from previous year
1 2018-19
2 2019-20
3 2020-21
4 20XX-XX
Grand Total
*Inclusive of complaints of previous years resolved in the current year.
#Inclusive of complaints pending as on the last day of the year.
Page 29 of 47
2. Undertaking on compliance of the advisory for Financial Sector
Organizations regarding Software as a Service (SaaS) based solutions to be
submitted half yearly:
The compliance of the advisory shall be reported by research analysts to SEBI
with an undertaking, “Compliance of the SEBI circular for Advisory for Financial
Sector Organizations regarding Software as a Service (SaaS) based solutions has
been made.”
3. To conduct annual audit:
In terms of regulation 25(3) of RA Regulations, research analyst or research entity
shall conduct annual audit in respect of compliance with RA regulations and circulars
issued thereunder from a member of Institute of Chartered Accountants of India or
Institute of Company Secretaries of India.
VI. ANNEXURES
ANNEXURE A
INVESTOR CHARTER IN RESPECT OF RAs
A. Vision and Mission Statements for investors
• Vision:
Invest with knowledge & safety.
• Mission:
Every investor should be able to invest in right investment products based on their
needs, manage and monitor them to meet their goals, access reports and enjoy
financial wellness.
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B. Details of business transacted by the Research Analyst with respect to the
investors
• To publish research report based on the research activities of the RA.
• To provide an independent unbiased view on securities.
• To offer unbiased recommendation, disclosing the financial interests in
recommended securities.
• To provide research recommendation, based on analysis of publicly available
information and known observations.
• To conduct audit annually
C. Details of services provided to investors (No Indicative Timelines)
• Onboarding of Clients
• Disclosure to Clients:
To distribute research reports and recommendations to the clients without
discrimination.
• To maintain confidentiality w.r.t publication of the research report until made
available in the public domain.
D. Details of grievance redressal mechanism and how to access it
In case of any grievance / complaint, an investor should approach the concerned
Research Analyst and shall ensure that the grievance is resolved within 30 days.
If the investor’s complaint is not redressed satisfactorily, one may lodge a complaint
with SEBI on SEBI’s SCORES portal which is a centralized web based complaints
redressal system. SEBI takes up the complaints registered via SCORES with the
concerned intermediary for timely redressal. SCORES facilitates tracking the status of
the complaint.
Page 31 of 47
With regard to physical complaints, investors may send their complaints to: Office of
Investor Assistance and Education, Securities and Exchange Board of India, SEBI
Bhavan, Plot No. C4-A, ‘G’ Block, Bandra-Kurla Complex, Bandra (E), Mumbai - 400
051.
E. Expectations from the investors (Responsibilities of investors)
• Do’s
i. Always deal with SEBI registered Research Analyst.
ii. Ensure that the Research Analyst has a valid registration certificate.
iii. Check for SEBI registration number.
iv. Please refer to the list of all SEBI registered Research Analysts which is
available on SEBI website in the following link:
https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=y
es&intm Id=14)
v. Always pay attention towards disclosures made in the research reports
before investing.
vi. Pay your Research Analyst through banking channels only and maintain duly
signed receipts mentioning the details of your payments.
vii. Before buying securities or applying in public offer, check for the research
recommendation provided by your Research Analyst.
viii. Ask all relevant questions and clear your doubts with your Research Analyst
before acting on the recommendation.
ix. Inform SEBI about Research Analyst offering assured or guaranteed returns.
• Don’ts
i. Do not provide funds for investment to the Research Analyst.
ii. Don’t fall prey to luring advertisements or market rumors.
iii. Do not get attracted to limited period discount or other incentive, gifts, etc.
offered by Research Analyst.
iv. Do not share login credential and password of your trading and demat
accounts with the Research Analyst.
Page 32 of 47
ANNEXURE B
COMPLAINT DATA TO BE DISPLAYED BY RAs
Formats for investors complaints data to be disclosed monthly by RAs on their
website/mobile application:
Data for the month ending -_____________
Sr. Received Pending at Receiv Resol Total Pending Average
No. from the end of ed ved* Pend complaints Resolution
last month ing# > 3months time^ (in days)
1 Directly
from
Investors
2 SEBI
(SCORES)
3 Other
Sources (if
any)
Grand
Total
* Inclusive of complaints of previous months resolved in the current month.
# Inclusive of complaints pending as on the last day of the month.
^ Average Resolution time is the sum total of time taken to resolve each complaint in days, in the
current month divided by total number of complaints resolved in the current month.
Trend of monthly disposal of complaints
Sr. Month Carried forward from Received Resolved* Pending#
No. previous month
1 April, YYYY
2 May, YYYY
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3 June, YYYY
4 ……………..
5 March, YYYY
Grand Total
* Inclusive of complaints of previous months resolved in the current month.
# Inclusive of complaints pending as on the last day of the month.
Trend of annual disposal of complaints
Sr. Year Carried forward Received Resolved* Pending#
No. from previous year
1 2018-19
2 2019-20
3 2020-21
4 20XX-XX
Grand Total
* Inclusive of complaints of previous years resolved in the current year.
# Inclusive of complaints pending as on the last day of the year.
Page 34 of 47
ANNEXURE C
ADVISORY FOR FINANCIAL SECTOR ORGANIZATIONS REGARDING
SOFTWARE AS A SERVICE (SaaS) BASED SOLUTION
TLP:AMBER
CERT-Fin Advisory- 201155100308
Advisory for Financial Sector Organisations - RBI and SEBI
Overview
It has been learnt that some of the financial sector institutions are availing or thinking of
availing Software as a Service (SaaS) based solution for managing their Governance,
Risk & compliance (GRC) functions so as to improve their cyber security posture.
Many a time the risk & compliance data of the institution moves cross border beyond the
legal and jurisdictional boundary of India due to the nature of shared cloud SaaS. While
SaaS may provide ease of doing business and quick turnaround, it also brings significant
risk to the overall health of India's financial sector with respect to data safety and security.
Description
If the following data sets fall in the hands of an adversary/cyber attacker, it may lead to
unprecedented increase in the attack surface area and weakening of Indian financial sector
infrastructure's overall resilience.
• Credit Risk Data
• liquidity Risk Data
• Market Risk Data
• System & Sub-System Information
• Internal & Partner IP Schema
• Network Topography & Design
• Audit/Internal Audit Data
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• System Configuration Data
• System Vulnerability Information
• Risk Exception Information
• Supplier Information & it's dependencies related Data
Solution
The Financial Sector organisations may be advised to protect such critical data using
layered defence approach and seamless protection against external or insider threat. The
organisations may also be advised to ensure complete protection & seamless control over
their critical system by continuous monitoring through direct control and supervision
protocol mechanisms while keeping such critical data within the legal boundary of India.
The organisations may also be requested to report back to their respective regulatory
authority regarding compliance to this advisory.
It is requested that you may kindly keep CERT-In informed of the actions taken and
periodically provide the updated compliance to this advisory.
(It may be noted that TLP Amber means: limited disclosure, restricted to participants'
organizations.
When should be used: Sources may use TLP:AMBER when information requires support
to be effectively acted upon, yet carries risks to privacy, reputation, or operations if
shared outside of the organizations involved.
How may it be shared: Recipients may only share TLP:AMBER information with members
of their own organization, and with clients or customers who need to know the information
to protect themselves or prevent further harm. Sources are at liberty to specify additional
intended limits of the sharing: these must be adhered to.)
Page 36 of 47
ANNEXURE D
DECLARATION CUM UNDERTAKING FOR SEEKING PRIOR APPROVAL FOR
CHANGE IN CONTROL
We M/s. (Name of the intermediary/the acquirer/person who shall have the control), hereby
declare and undertake the following with respect to the application for prior approval for
change in control of (name of the intermediary along with the SEBI registration no.):
1. The applicant/intermediary (Name) and its principal officer, the directors or managing
partners, the compliance officer and the key management persons and the promoters
or persons holding controlling interest or persons exercising control over the applicant,
directly or indirectly (in case of an unlisted applicant or intermediary, any person holding
twenty percent or more voting rights, irrespective of whether they hold controlling
interest or exercise control, shall be required to fulfill the ‘fit and proper person’ criteria)
are fit and proper person in terms of Schedule II of SEBI (Intermediaries) Regulations,
2008.
2. We bear integrity, honesty, ethical behaviour, reputation, fairness and character.
3. We do not incur following disqualifications mentioned in Clause 3(b) of Schedule II of
SEBI (Intermediaries) Regulations, 2008 i.e.
(i) No criminal complaint or information under section 154 of the Code of Criminal
Procedure, 1973 (2 of 1974) has been filed against us by the Board and which is
pending.
(ii) No charge sheet has been filed against us by any enforcement agency in matters
concerning economic offences and is pending.
(iii) No order of restraint, prohibition or debarment has been passed against us by
the Board or any other regulatory authority or enforcement agency in any matter
concerning securities laws or financial markets and such order is in force.
(iv) No recovery proceedings have been initiated by the Board against us and are
pending.
(v) No order of conviction has been passed against us by a court for any offence
Page 37 of 47
involving moral turpitude.
(vi) No winding up proceedings have been initiated or an order for winding up has
been passed against us.
(vii) We have not been declared insolvent.
(viii) We have not been found to be of unsound mind by a court of competent
jurisdiction and no such finding is in force.
(ix) We have not been categorized as a wilful defaulter.
(x) We have not been declared a fugitive economic offender.
4. We have not been declared as not ‘fit and proper person’ by an order of the Board.
5. No notice to show cause has been issued for proceedings under SEBI(Intermediaries)
Regulations, 2008 or under section 11(4) or section 11B of the SEBI Act during last one
year against us.
6. It is hereby declared that we and each of our promoters, directors, principal officer,
compliance officer and key managerial persons are not associated with vanishing
companies.
7. We hereby undertake that there will not be any change in the Board of Directors of
incumbent, till the time prior approval is granted.
8. We hereby undertake that pursuant to grant of prior approval by SEBI, the incumbent
shall inform all the existing investors/ clients about the proposed change prior to
effecting the same, in order to enable them to take informed decision regarding their
continuance or otherwise with the new management.
The said information is true to our knowledge.
(stamped and signed by the Authorised Signatories)
Page 38 of 47
ANNEXURE E
PRINCIPLES FOR OUTSOURCING FOR INTERMEDIARIES
1. An intermediary seeking to outsource activities shall have in place a
comprehensive policy to guide the assessment of whether and how those
activities can be appropriately outsourced. The Board / partners (as the case
may be) {hereinafter referred to as the “the Board”} of the intermediary shall
have the responsibility for the outsourcing policy and related overall
responsibility for activities undertaken under that policy.
1.1. The policy shall cover activities or the nature of activities that can be
outsourced, the authorities who can approve outsourcing of such activities,
and the selection of third party to whom it can be outsourced. For example,
an activity shall not be outsourced if it would impair the supervisory
authority’s right to assess, or its ability to supervise the business of the
intermediary. The policy shall be based on an evaluation of risk
concentrations, limits on the acceptable overall level of outsourced activities,
risks arising from outsourcing multiple activities to the same entity, etc.
1.2. The Board shall mandate a regular review of outsourcing policy for such
activities in the wake of changing business environment. It shall also have
overall responsibility for ensuring that all ongoing outsourcing decisions
taken by the intermediary and the activities undertaken by the third-party, are
in keeping with its outsourcing policy.
2. The intermediary shall establish a comprehensive outsourcing risk
management programme to address the outsourced activities and the
relationship with the third party.
2.1. An intermediary shall make an assessment of outsourcing risk which
depends on several factors, including the scope and materiality of the
outsourced activity, etc. The factors that could help in considering materiality
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in a risk management programme include-
2.1.1. The impact of failure of a third party to adequately perform the activity
on the financial, reputational and operational performance of the
intermediary and on the investors / clients;
2.1.2. Ability of the intermediary to cope up with the work, in case of non
performance or failure by a third party by having suitable back-up
arrangements;
2.1.3. Regulatory status of the third party, including its fitness and probity
status;
2.1.4. Situations involving conflict of interest between the intermediary and
the third party and the measures put in place by the intermediary to
address such potential conflicts, etc.
2.2. While there shall not be any prohibition on a group entity / associate of the
intermediary to act as the third party, systems shall be put in place to have
an arm’s length distance between the intermediary and the third party in
terms of infrastructure, manpower, decision-making, record keeping, etc. for
avoidance of potential conflict of interests. Necessary disclosures in this
regard shall be made as part of the contractual agreement. It shall be kept in
mind that the risk management practices expected to be adopted by an
intermediary while outsourcing to a related party or an associate would be
identical to those followed while outsourcing to an unrelated party.
2.3. The records relating to all activities outsourced shall be preserved centrally
so that the same is readily accessible for review by the Board of the
intermediary and / or its senior management, as and when needed. Such
records shall be regularly updated and may also form part of the corporate
governance review by the management of the intermediary.
2.4. Regular reviews by internal or external auditors of the outsourcing policies,
risk management system and requirements of the regulator shall be
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mandated by the Board wherever felt necessary. The intermediary shall
review the financial and operational capabilities of the third party in order to
assess its ability to continue to meet its outsourcing obligations.
3. The intermediary shall ensure that outsourcing arrangements neither
diminish its ability to fulfill its obligations to customers and regulators, nor
impede effective supervision by the regulators.
3.1. The intermediary shall be fully liable and accountable for the activities that
are being outsourced to the same extent as if the service were provided in-
house.
3.2. Outsourcing arrangements shall not affect the rights of an investor or client
against the intermediary in any manner. The intermediary shall be liable to
the investors for the loss incurred by them due to the failure of the third party
and also be responsible for redressal of the grievances received from
investors arising out of activities rendered by the third party.
3.3. The facilities / premises / data that are involved in carrying out the outsourced
activity by the service provider shall be deemed to be those of the registered
intermediary. The intermediary itself and Regulator or the persons authorized
by it shall have the right to access the same at any point of time.
3.4. Outsourcing arrangements shall not impair the ability of SEBI/SRO or
auditors to exercise its regulatory responsibilities such as
supervision/inspection of the intermediary.
4. The intermediary shall conduct appropriate due diligence in selecting the
third party and in monitoring of its performance.
4.1. It is important that the intermediary exercises due care, skill, and diligence in
the selection of the third party to ensure that the third party has the ability
and capacity to undertake the provision of the service effectively.
4.2. The due diligence undertaken by an intermediary shall include assessment
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of:
4.2.1. third party’s resources and capabilities, including financial
soundness, to perform the outsourcing work within the timelines
fixed;
4.2.2. compatibility of the practices and systems of the third party with the
intermediary’s requirements and objectives;
4.2.3. market feedback of the prospective third party’s business reputation
and track record of their services rendered in the past;
4.2.4. level of concentration of the outsourced arrangements with a single
third party; and
4.2.5. the environment of the foreign country where the third party is
located.
5. Outsourcing relationships shall be governed by written contracts /
agreements / terms and conditions (as deemed appropriate) {hereinafter
referred to as “contract”} that clearly describe all material aspects of the
outsourcing arrangement, including the rights, responsibilities and
expectations of the parties to the contract, client confidentiality issues,
termination procedures, etc.
5.1. Outsourcing arrangements shall be governed by a clearly defined and legally
binding written contract between the intermediary and each of the third
parties, the nature and detail of which shall be appropriate to the materiality
of the outsourced activity in relation to the ongoing business of the
intermediary.
5.2. Care shall be taken to ensure that the outsourcing contract:
5.2.1. clearly defines what activities are going to be outsourced, including
appropriate service and performance levels;
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5.2.2. provides for mutual rights, obligations and responsibilities of the
intermediary and the third party, including indemnity by the parties;
5.2.3. provides for the liability of the third party to the intermediary for
unsatisfactory performance/other breach of the contract
5.2.4. provides for the continuous monitoring and assessment by the
intermediary of the third party so that any necessary corrective
measures can be taken up immediately, i.e., the contract shall
enable the intermediary to retain an appropriate level of control over
the outsourcing and the right to intervene with appropriate
measures to meet legal and regulatory obligations;
5.2.5. includes, where necessary, conditions of sub-contracting by the
third-party, i.e. the contract shall enable intermediary to maintain a
similar control over the risks when a third party outsources to further
third parties as in the original direct outsourcing;
5.2.6. has unambiguous confidentiality clauses to ensure protection of
proprietary and customer data during the tenure of the contract and
also after the expiry of the contract;
5.2.7. specifies the responsibilities of the third party with respect to the IT
security and contingency plans, insurance cover, business
continuity and disaster recovery plans, force majeure clause, etc.;
5.2.8. provides for preservation of the documents and data by third party;
5.2.9. provides for the mechanisms to resolve disputes arising from
implementation of the outsourcing contract;
5.2.10. provides for termination of the contract, termination rights, transfer
of information and exit strategies;
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5.2.11. addresses additional issues arising from country risks and potential
obstacles in exercising oversight and management of the
arrangements when intermediary outsources its activities to foreign
third party. For example, the contract shall include choice-of-law
provisions and agreement covenants and jurisdictional covenants
that provide for adjudication of disputes between the parties under
the laws of a specific jurisdiction;
5.2.12. neither prevents nor impedes the intermediary from meeting its
respective regulatory obligations, nor the regulator from exercising
its regulatory powers; and
5.2.13. provides for the intermediary and /or the regulator or the persons
authorized by it to have the ability to inspect, access all books,
records and information relevant to the outsourced activity with the
third party.
6. The intermediary and its third parties shall establish and maintain
contingency plans, including a plan for disaster recovery and periodic
testing of backup facilities.
6.1. Specific contingency plans shall be separately developed for each
outsourcing arrangement, as is done in individual business lines.
6.2. An intermediary shall take appropriate steps to assess and address the
potential consequence of a business disruption or other problems at the third
party level. Notably, it shall consider contingency plans at the third party; co-
ordination of contingency plans at both the intermediary and the third party;
and contingency plans of the intermediary in the event of non-performance
by the third party.
6.3. To ensure business continuity, robust information technology security is a
necessity. A breakdown in the IT capacity may impair the ability of the
intermediary to fulfill its obligations to other market
participants/clients/regulators and could undermine the privacy interests of
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its customers, harm the intermediary’s reputation, and may ultimately impact
on its overall operational risk profile. Intermediaries shall, therefore, seek to
ensure that third party maintains appropriate IT security and robust disaster
recovery capabilities.
6.4. Periodic tests of the critical security procedures and systems and review of
the backup facilities shall be undertaken by the intermediary to confirm the
adequacy of the third party’s systems.
7. The intermediary shall take appropriate steps to require that third parties
protect confidential information of both the intermediary and its customers
from intentional or inadvertent disclosure to unauthorised persons.
7.1. An intermediary that engages in outsourcing is expected to take appropriate
steps to protect its proprietary and confidential customer information and
ensure that it is not misused or misappropriated.
7.2. The intermediary shall prevail upon the third party to ensure that the
employees of the third party have limited access to the data handled and
only on a “need to know” basis and the third party shall have adequate
checks and balances to ensure the same.
7.3. In cases where the third party is providing similar services to multiple entities,
the intermediary shall ensure that adequate care is taken by the third party
to build safeguards for data security and confidentiality.
8. Potential risks posed where the outsourced activities of multiple
intermediaries are concentrated with a limited number of third parties.
In instances, where the third party acts as an outsourcing agent for multiple
intermediaries, it is the duty of the third party and the intermediary to ensure that
strong safeguards are put in place so that there is no co-mingling of information
/documents, records and assets.
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VII. APPENDIX: LIST OF CIRCULARS / NOTIFICATIONS/ COMMUNICATIONS
Sr. Circular/ Notification No. Date Subject
No.
1 Cir/ ISD/1/2011 23-Mar-11 Unauthenticated news circulated by SEBI
Registered Market Intermediaries through
various modes of communication
2 CIR/ISD/2/2011 24-Mar-11 Addendum to Circular no. Cir/ISD/1/2011
dated March 23, 2011
3 CIR/MIRSD/24/2011 15-Dec-11 Guidelines on Outsourcing of Activities by
Intermediaries
4 CIR/MIRSD/5/2013 27-Aug-13 General Guidelines for dealing with Conflicts of
Interest of Intermediaries and their Associated
Persons in Securities Market
5 CIR/MIRSD/3/2014 28-Aug-14 Information regarding Grievance Redressal
Mechanism
6 CIR/MIRSD/2/2015 26-Aug-15 Implementation of the Multilateral Competent
Authority Agreement and Foreign Account Tax
Compliance Act
7 CIR/MIRSD/3/2015 10-Sep-15 Reporting requirement under Foreign Account
Tax Compliance Act (FATCA) and Common
Reporting Standards (CRS)-Guidance Note
8 SEBI/HO/IMD/DF1/CIR/P/ 03-Aug-20 Procedural Guidelines for Proxy Advisors
2020/147
9 SEBI/HO/CFD/CMD1/CIR/ 04-Aug-20 Grievance Resolution between listed entities
P/2020/119 and proxy advisers
10 SEBI/HO/IMD/DF1/CIR/P/ 27-Aug-20 Procedural Guidelines for Proxy Advisors’ -
2020/157 Extension of implementation timeline
11 SEBI/HO/CFD/CMD1/CIR/ 27-Aug-20 Grievance Resolution between listed entities
P/2020/159 and proxy advisers’ –Extension of timeline for
implementation
12 SEBI/HO/MIRSD2/DOR/C 03-Nov-20 Advisory for Financial Sector Organizations
IR/P/2020/221 regarding Software as a Service (SaaS) based
solutions
13 SEBI/HO/IMD/DF1/CIR/P/ 31-Dec-20 Procedural Guidelines for Proxy Advisors
2020/256
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Sr. Circular/ Notification No. Date Subject
No.
14 SEBI/HO/IMD/IMD-II 13-Dec-21 Publishing of Investor Charter and disclosure
CIS/P/CIR/2021/0685 of Investor Complaints by Research Analysts
on their websites/mobile applications
15 SEBI/HO/DEPA-III/DEPA- 25-Feb-22 Approach to securities market data access and
III_SSU/P/CIR/2022/25 terms of usage of data provided by data
sources in Indian securities market
16 SEBI/HO/MIRSD/ MIRSD- 28-Nov-22 Procedure for seeking prior approval for
PoD-2/P/CIR/2022/163 change in control
17 SEBI/HO/MIRSD/ 05-Apr-23 Advertisement code for Investment Advisers
MIRSD-PoD- (IA) and Research Analysts (RA)
2/P/CIR/2023/51
18 SEBI/HO/MIRSD/ 06-Apr-23 Usage of brand name/trade name by
MIRSD-PoD- Investment Advisers (IA) and Research
Analysts (RA)
2/P/CIR/2023/52
*****
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