As part of the broader efforts of Securities and Exchange Board of India (SEBI) to facilitate and streamline the registration and operational processes for intermediaries, the regulator will soon have a performance validation agency for investors to verify all claims of market outperformance.
At present, mutual funds and portfolio managers report their performance every quarter, but those claims are self-verified and not vetted by independent agencies. Introducing a performance validation agency, suggested by SEBI in August 2023, will ensure a dedicated agency validating such claims, thereby enhancing transparency and trust in the market.
"You will soon see the performance validation agency,” said SEBI Chairperson Madhabi Puri Bhuch at a capital market conference organised by industry lobby Ficci here on Friday.
Praising the National Stock Exchange for its role in an innovative use of technology for affordability, which will enhance the credibility of investment intermediaries, she said exchange has done some brilliant work in this offering the technology support for the proposed performance validation agency.
The proposed agency will allow anyone claiming higher returns and market outperformance--whether algorithm providers, research analysts, investment advisors, or portfolio managers--to validate using advanced technology at an affordable cost, she explained.
The initiative is part of market regulator’s broader effort to facilitate and streamline registration and operational processes for intermediaries.
"We’re trying to speed up registration of intermediaries. We should ensure that people who want to come into this ecosystem are facilitated as soon as possible," Buch said.
"We are very cognizant that their (intermediaries) lives should be made easier through the entire life cycle. Therefore, we set up working groups for ease of doing business."
The agency is being proposed to validate claims related to investment advice, ‘buy/sell/hold' recommendations, mutual funds, portfolio management services, as well as algorithms. The initiative is a response to various representations from investment advisory industry seeking a mechanism to substantiate their performance claims.
On August 31, 2023, SEBI had issued a consultation paper outlining the proposal for a performance validation agency, intended as a subsidiary of market infrastructure institution (MII) or an entity jointly supported by multiple MIIs. The agency will serve investors by ensuring all performance claims made by registered intermediaries such as investment advisors, research analysts, and portfolio managers, are verified and credible