SEBI Introduces Verification Agency to Curb Misleading Return Claims

The Securities and Exchange Board of India (SEBI) has launched a new initiative, the “Past Risk and Return Verification Agency” (PaRRVA), to combat misleading claims about investment returns. This agency will verify the risk-return metrics of services offered by investment advisors, research analysts, algorithmic trading platforms, and similar entities.

Mandatory Verification for High Return Claims

Investment advisors and related entities must have claims like “best performing” or “high returns” verified by PaRRVA. This step ensures that such assertions are accurate and credible. A credit rating agency will act as the verifier, while a stock exchange will manage the data.

Role of PaRRVA

PaRRVA will validate claims in promotional materials akin to an ISI mark. The National Stock Exchange (NSE) has already established a firm to serve as the data centre, but a final decision on the responsible exchange and credit rating agency is pending.

Implementation Challenges and Timeline

Initially, PaRRVA will run as a pilot project for 2 months to refine its processes. The agency is not mandatory for entities, but those opting out cannot make risk-return claims. Industry experts believe the system will take time to become fully operational due to technological and cost-related hurdles.

Addressing False Claims

SEBI’s move follows growing concerns about false return claims on social media and other platforms, which mislead investors. The new framework is expected to enhance trust and transparency in the investment ecosystem.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.