10-point Audit Checklist for SEBI Research Analyst – Updated 2022

All SEBI registered Research Analysts and Investment Advisers have to get the compliance audit done annually.

Although it has not been specified when the audit should be done, SEBI, in the guidelines of Investment Advisers, has mentioned that the audit should be completed within 6 months from the end of the financial year.

In my view, we can follow the same from RAs too since we now know what SEBI expects.

I have already written about the annual compliance audit of Investment Advisers. Click here to read the post.

In this post, we will know how Research Analysts should get prepared for the annual compliance audit under SEBI (Research Analyst) Regulations, 2014.

Here we go:

#1 – Qualification and certification requirements 

As a research analyst, you should ensure that you meet the qualification and certification requirements at all times. In case any certificate is due for renewal, it should be renewed in advance.

Document(s) required: Qualification certificates, NISM certificates

#2 – Capital adequacy requirements

You should ensure that the capital adequacy requirement is fulfilled at all times, throughout the validity of the registration. For an individual and partnership firm, the requirement is Rs. 1 lakh. In case of a company or LLP, the same is Rs. 25 lakhs.

Document(s) required: Balance sheet, if any or Net worth certificate by a Chartered Accountant.

#3 – Communication to SEBI 

Any material change has been communicated to SEBI in writing, like hiring employees, change of communication address, etc.

Document(s) required: Copy of letters / emails to SEBI and Form A submitted to SEBI at the time of application. Form A will be the basis to check if there are any changes.

#4 – Client correspondences 

You are required to mention the words “research analyst” in all correspondence with your clients.

Document(s) required:  Copy of letters / emails / other documents like research reports, which are sent to clients.

#5 – Internal policies and procedures 

You are required to have a written policy for governing dealing and trading by you or the research analyst employed by you.

Document(s) required: Written internal policy(ies)

#6 – Limitations on trading 

Personal trading activities of research analysts have to be monitored. If you have any employees, they should take approval before trading in securities.

Document(s) required: Declarations by research analyst, approval forms as per the policies, etc.

#7 – Basis for research report to be documented 

You should have adequate documentary basis, supported by research, for preparing a research report

Document(s) required: documents for basis of research report

#8 – Disclosures in the research reports and contents of research report 

You are required to make certain disclosures in the research reports about you, your associates etc. Click here to view the article on disclosures in research reports.

Document(s) required: Copy of research reports or the disclosure document

#9 – Maintenance of records 

You are required to maintain following records:

• Research report duly signed and dated;
• Research recommendation provided;
• Rationale for arriving at research recommendation;
• Record of public appearance.

Document(s) required: Copy of records maintained

Please note that you need to maintain the documents either electronically / physically for atleast 5 years.

#10 – Display of the investor charter and complaints table on the website

All research analysts also need to display investor charter and complaints table on their website. Click here to know more.

So this is the basic checklist to help you get prepared for the audit.

As a research entity, you need to comply with two additional requirements:

• Compensation of research analyst – you need to have a formal approval process for compensation of research analysts

Document(s) required: Approval in writing, resolution passed by Board of Directors

• Appointment of a compliance officer – you need to appoint a Compliance Officer to look after the compliance of the regulation.

Document required: Board / partner’s resolution for appointment of the compliance officer.

Haven’t got your audit done? I can help you.

As a Practising Company Secretary, I can conduct the audit for you.

I will also give you a signed audit report, detailing my observations, that you can share with SEBI, if asked for.

Not just that, my audit will help in process improvements and be better compliant. Click here to know the process I follow for audit.

For further information write to me at kruti@cskruti.com.