SEBI Introduces Optional Centralized Fee Collection Mechanism for Investment Advisers (IAs) and Research Analysts (RAs) with NISM Exam Prep MCQs

Key Points: New Centralized Fee Collection Mechanism for Investment Advisers and Research Analysts by SEBI with NISM Exam Prep MCQs

Summary of SEBI Circular SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2024/114: 

On August 22, 2024, SEBI launched a new initiative to bring greater transparency to fee collection practices for Investment Advisers (IAs) and Research Analysts (RAs). With increasing investor participation in the securities market, the Centralized Fee Collection Mechanism (CeFCoM) was introduced as an optional system where investors can securely pay fees to their IAs and RAs through a designated platform.

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Key Highlights:

1. Rationale Behind CeFCoM: The mechanism was developed to ensure a transparent and secure process for fee payments, where investors can confidently confirm that fees are being paid only to SEBI-registered IAs and RAs.
2. Mechanism Details: CeFCoM is a centralized platform administered by a recognized Administration and Supervisory Body (ASB), with development support from BSE Limited. The system is slated to become operational on October 01, 2024, after the operational framework is defined by September 23, 2024.
3. Encouraging Adoption: While use of CeFCoM is optional, SEBI has encouraged ASB, registered IAs, and RAs to promote this mechanism to their clients for enhanced fee transparency and protection of investor interests.
4. Regulatory Foundation: SEBI issued this circular under its mandate to protect investor interests, invoking powers granted under the Securities and Exchange Board of India Act, 1992, in conjunction with SEBI's regulations for Investment Advisers (2013) and Research Analysts (2014).
5. Accessing the Circular: The full circular can be accessed via SEBI's official website, under "Legal > Circulars" and relevant sections for IAs and RAs.

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NISM Exam Preparation Multiple Choice Questions (MCQs)

1. What is the main goal of the Centralized Fee Collection Mechanism (CeFCoM)?
   • A) To reduce fees charged by IAs and RAs
   • B) To create a secure and transparent fee payment process for investors
   • C) To allow unregistered IAs and RAs to collect fees
   • D) To monitor performance of IAs and RAs
   Answer: B) To create a secure and transparent fee payment process for investors
2. When is the Centralized Fee Collection Mechanism expected to go live?
   • A) September 23, 2024
   • B) October 01, 2024
   • C) August 22, 2024
   • D) November 15, 2024
   Answer: B) October 01, 2024
3. Who is responsible for creating the operational framework for the CeFCoM?
   • A) National Stock Exchange
   • B) SEBI
   • C) BSE Limited
   • D) Reserve Bank of India
   Answer: C) BSE Limited
4. Is the CeFCoM mandatory for all IAs and RAs?
   • A) Yes, it's a compulsory mechanism
   • B) No, it is optional but encouraged
   • C) Only for those with a certain client base
   • D) It depends on the jurisdiction
   Answer: B) No, it is optional but encouraged
5. Which legislation gives SEBI the authority to implement this circular?
   • A) Companies Act, 2013
   • B) Securities and Exchange Board of India Act, 1992
   • C) Banking Regulation Act, 1949
   • D) Indian Contract Act, 1872
   Answer: B) Securities and Exchange Board of India Act, 1992

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