SEBI Unveils Framework for PaRRVA to Curb Misleading Performance Claims

The Securities and Exchange Board of India (SEBI) on Friday issued the operational framework for its new performance validation agency—the Past Risk and Return Verification Agency (PaRRVA). This initiative aims to regulate and verify claims about past performance made in advertisements by intermediaries like investment advisors, research analysts, and stock brokers.

Pilot Phase and Objectives

To start, the verification services under PaRRVA will be launched on a two-month pilot basis, during which feedback will be collected from stakeholders to fine-tune the process. According to a SEBI circular, the goal of the framework is to prevent misleading advertisements and ensure greater transparency in the marketing of financial products and services.

Eligibility and Role of Verification Agencies

As per SEBI’s guidelines, only credit rating agencies (CRAs) meeting strict eligibility criteria will be recognised as performance verification agencies under the PaRRVA framework. To qualify, a CRA must have:

• A minimum of 15 years of operational experience
• A net worth of at least ₹100 crore
• A robust investor grievance redressal mechanism, including an Online Dispute Resolution (ODR) system

SEBI will grant official recognition to qualifying CRAs after an assessment. These agencies will also be required to partner with a recognised stock exchange, which will serve as the PaRRVA Data Centre (PDC).

Responsibilities of the PDC and Verification Standards

The designated PDC will be tasked with collecting data from mutual funds, stock exchanges, and other financial entities. It will also be responsible for building and maintaining the verification system while upholding data security and confidentiality.

PaRRVA itself will define the methodologies used for performance verification, manage disputes and grievances, and retain records of verified data for a minimum of five years. In case of any dispute between the agency and intermediaries, issues will first be handled internally, and unresolved matters can be escalated to the ODR platform.

Disclaimers and Oversight

SEBI has mandated that any use of verified risk-return metrics in promotional material must be accompanied by clear disclaimers. These disclaimers will note that:

• Past performance is not indicative of future results
• Verified returns do not guarantee assured returns
• Risk-return metrics should not be the sole basis for investment decisions
• Verified returns may differ from actual returns received by clients

To ensure accountability, an oversight committee will be formed to supervise both the PaRRVA and the PDC. Additionally, SEBI reserves the right to inspect its activities and enforce compliance where necessary.

Conclusion 

SEBI’s introduction of the PaRRVA framework marks a significant step toward enhancing transparency and accountability in financial product promotions.

By mandating strict eligibility norms and verification protocols, the regulator aims to protect investors from misleading claims.

The pilot phase and oversight mechanisms reflect SEBI’s commitment to refining the system before full-scale implementation, ensuring robust investor safeguards.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.