The Securities & Exchange Board of India (Sebi) is all set to crack down on firms that are not registered with it and are still offering or soliciting portfolio management services.

Earlier this month, on February 10, FE brought to the notice of investors that several unregistered firms were offering portfolio management services and also soliciting business over the internet.

A senior Sebi official acknowledged that they are investigating the matter of other unregistered firms now and that appropriate action will be taken against them. Also, unregistered firms, which are practicing PMS because their parent firm or subsidiary firm have a certificate, will also come under the scanner, for Sebi rules clearly indicate that each entity offering PMS must be individually registered with them.

Many of these firms mentioned in the article had applied for registration but had not yet been given the registration certificate. And despite this, when the regulations bar them from offering services, were clearly seen soliciting.

However, in the case of firms applying for re-registration, they are allowed to continue managing their current client’s funds, but are not allowed to acquire any new clients till their registration is complete. Of the names mentioned by FE, Arihant Capital Market’s registration had expired on October 31, 2008. Sebi had, on January 14, 2009, granted the firm the eligibility to offer PMS services and the website was updated later.

And, for the others offering or soliciting PMS without registration, as per Sebi’s rules and regulations, there could be wide ranging consequences. As per the Securities and Exchange Board of India (Portfolio Management) Regulations, 1993, some of the action taken against the firms is the suspension of their registration certificates or cancellation of the certificates. Also, if investigations reveal frauds, then the companies may also face criminal charges against them.

Portfolio managers also need to answer to any client grievances, within a maximum of one month, failing which, if an investor brings this to Sebi’s notice; they will intervene and take appropriate action. Companies are also liable to be fined in accordance with the law, and net-net it looks like those firms, which are illegally practicing portfolio management are in for a rough time ahead.

Such frauds are a very serious offence and as per the Sebi Act, and post an investigation, if the parties are found guilty, they may find themselves facing criminal charges and a hefty fine.