Sebi’s PaRRVA to verify risk-return metrics claims of IAs, algo providers
The Securities and Exchange Board of India (Sebi) issued a framework for the Past Risk and Return Verification Agency (PaRRVA), designed to independently verify the risk and return metrics claimed by investment advisors (IAs), research analysts (RAs), and algorithmic trading providers.
PaRRVA was introduced during Sebi’s board meeting on 19 December to provide investors with independent verification of these services’ risk and return characteristics before they invest.
Sebi notified on 4 April that credit rating agencies (CRAs) meeting stringent eligibility criteria can be recognized as PaRRVAs; while recognized stock exchanges will act as PaRRVA sata centers (PDCs), providing the necessary infrastructure.
PaRRVA will ultimately be responsible for the verification process, though they can use PDC’s services.
The Sebi criteria stated that CRAs applying for PaRRVA status must have a minimum of 15 years of existence and a net worth of at least ₹100 crore, and bourses acting as PDCs must also have a minimum of 15 years of existence and a net worth of ₹200 crore. They are required to have a robust investor grievance redressal mechanism, including Online Dispute Resolution (ODR).
Sebi clarified that it will oversee a two-stage recognition process involving in-principle approval followed by final recognition. After final recognition, PaRRVAs will conduct a two-month pilot programme to fine-tune systems and processes. During this period, Sebi will gather feedback from regulated persons, and verified data will not be made public during the pilot.
Oversight panel for PaRRVA
The circular also stated that PaRRVAs will establish an oversight committee to monitor activities. Any display of risk-return metrics verified by PaRRVA and any claim using such metrics shall be accompanied by appropriate disclaimers, the circular clarified.
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“These shall inter alia include disclaimers specifying that past performance is not indicative of future results, verified returns do not guarantee any assured returns, the information about risk-return metrics should not be used as singular basis for investment decisions, and the verified return may be different from the actual return accrued to a client,” the circular said.
For dispute resolution, the circular specified that any disagreements between PaRRVAs and the regulated entities would be handled through a mechanism established by the PaRRVA itself. This system, set up within two months of Sebi’s in-principle approval, will also allow for appeals to the PaRRVA’s Oversight Committee.
If the Oversight Committee cannot resolve the issue, both the PaRRVA and the regulated entity can pursue resolution through the Online Dispute Resolution (ODR) portal, ensuring an impartial and efficient process.
For investors, complaints related to PaRRVA-verified risk and return metrics or complaints directly against PaRRVA will be addressed through the SCORES platform. In cases requiring further dispute resolution, the ODR portal will be utilized.
