CRA to scrutinise claims of high returns by investment service providers

Under the new norms, the CRA will act as 'Past Risk and Return Verification Agency' with a recognized stock exchange serving as 'Past Risk and Return Verification Agency' data centre

Markets regulator Sebi has said that risk-return metrics of services offered by investment advisers, research analysts, and algo trading providers will be scrutinised by a credit rating agency, a move aimed at checking claims of high returns. 

Under the new norms, the credit rating agency (CRA) will act as 'Past Risk and Return Verification Agency' with a recognized stock exchange serving as 'Past Risk and Return Verification Agency' data centre. 

"The activity of a Past Risk and Return Verification Agency ... may be carried out by a credit rating agency, with the approval of the Board (Sebi), on such terms and conditions as may be specified by the Board," the regulator said in three separate notifications dated March 20. 

The agency will carry out the verification of risk-return metrics for Investment Advisors (IAs), Research Analysts (RAs) and Algorithmic Trading, and those persons permitted by Sebi to offer these services. 

The markets regulator said that any claim in the form of verified risk or return metrics will be made in the manner specified by it. In case an intermediary fails to adhere to the verification requirements Sebi may take appropriate action. 

To give this effect, the regulator has introduced amendments to rules governing Intermediaries, Credit Rating along with Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) norms. The move would enhance the transparency and accuracy of financial performance metrics disclosed by intermediaries.