Timeline for PMS 2.0 guidelines worries Rs 16-trillion industry

Notification awaited a month after announcement; service providers fear sudden implementation

Lack of a defined timeline for the implementation of new regulations has led to a fear of disruption among industry players as they await the official notification of the first overhaul of the portfolio management services (PMS) regulations in nearly two decades.
 
The Securities and Exchange Board of India (Sebi) has announced changes, including the appointment of key employees and custodians under the Sebi (Portfolio Managers) Regulations, 2019. The changes were approved in November, but are yet to be notified. The regulations replace the Sebi (Portfolio Managers) Regulations, 1993.
 
PMS providers expressed concerns that a sudden implementation may cause difficulties to the industry that manages over Rs 16 trillion in assets. One service provider said that getting necessary approvals from clients for transferring their assets to a custodian may take time, and a sudden implementation may lead them to be in technical violation of the new regulations.
 
PMS typically manage money for rich investors. They are generally perceived as taking a higher risk for potentially higher returns. The new regulations look to tighten norms for an industry which is seen to be loosely governed. Key employees will now have to meet defined criteria and assets are also sought to be better protected.
 
“The enhanced eligibility criteria (are) to be applicable to any employee with decision-making authority relating to management of clients’ portfolios… the appointment of custodian (is) mandatory for all the portfolio managers, except for those providing only advisory services to clients,” said the November press release in which the new regulations were announced.
 
Sebi had set up a group to examine the old regulations. It had released its report in the middle of the year. It suggested a number of changes to the existing rules. Some of these were accepted in the board meeting after which the announcement was made.
 
Other changes in the new regulations include a higher net-worth for players of Rs 5 crore and increasing the minimum investment to Rs 50 lakh. A player said that they are trying to follow the new regulations as announced in the absence of the fine print in a notification.
 
“We are taking a conservative approach,” said the person.
 
Legal experts said Sebi may take steps to avoid major issues. “Sebi may provide reasonable time after notification of the regulations in order to encourage portfolio managers to align their systems and be compliant with the regulations,” said Sumit Agrawal, founder of legal firm, RegStreet Law Advisors.
 
Tejesh Chitlangi, senior partner at IC Universal Legal, said that one would expect a long enough timeline for getting a custodian in place. Draft regulations released earlier can provide some guidance on other matters, according to him.
 
“The draft regulations have been in the public domain for some time. The press release which came later had some divergence with the draft. One would want to see the final document for clarity on those points. Meanwhile, portfolio managers would be able to continue operations under the old norms until the new regulations are notified,” he said.
 
An email sent to the regulator did not immediately receive a reply.