SEBI has imposed the maximum penalty of Rs. 1 crore, jointly and severally on CapitalVia Global Research Limited (a SEBI registered Investment Adviser) and its directors.
Yes, you read it right! The “maximum” penalty.
CapitalVia has served as a gross reminder for everything that can go wrong in the RIA practice, again.
And it is a reminder for you about what to avoid as you build a compliant RIA business.
The case of CapitalVia is not new. If you recall, SEBI had issued an order against the company in November 2016.
SEBI had conducted an inspection for the period from April 1, 2013 to July 2, 2015.
The reason being that SEBI received approximately 240 complaints, major ones being that CapitalVia charged exorbitant fees for the services rendered with no justification.
CapitalVia violated almost all the requirements of IA regulations including the clauses of the Code of Conduct for Investment Advisers specified under Schedule Ill of the IA Regulations.
Click here to read my article, written back then, which covers the details of non-compliance.
On October 19, 2022, SEBI issued an Adjudication Order in the matter of CapitalVia and its directors detailing the non-compliance again and mentioning the penalty.
Based on the adjudication order, I want to reiterate the key observations here. Consider these as reminders.
In order to avoid any adjudication from SEBI, as a registered investment adviser, you have to:
- Maintain KYC records of all the clients.
- Obtain the basic information necessary for the purpose of providing investment advice to clients such as the investment objectives, and client’s capacity for absorbing loss.
- In case you are getting the risk profile questionnaire physically filled, ensure that all the fields are filled by the clients.
- Do your own independent assessment of suitability of the advice to the clients and not let the clients opt for your services irrespective of the risk profile of the client.
- Disclose all material facts relating to the key features of the products or securities, particularly, performance track record. Consider the loss-making calls (recommendations) too, while calculating performance track record.
- Ensure that the same employees do not provide advisory and execution services and there is clear segregation of services.
- Take the responsibility of the suitability of advice and not put the onus of investment decisions on the clients. Displaying disclaimers on the website will not help you.
- Ensure that the disclosures are displayed on all the websites used for soliciting clients.
As I always say “the cost of non-compliance is much higher than the cost of compliance”.
CapitalVia had to pay a huge penalty for non-compliance.
And yes, ignorance of law is not an excuse for non-compliance.
Surrendering your license is also an option to consider