In April 2025, Mumbai (Maharashtra)-based market regulator Securities and Exchange Board of India (SEBI) issued operational framework for a performance validation agency called the Past Risk and Return Verification Agency (PaRRVA).
- This new framework aims to prevent misleading claims about past performance in advertisements related to financial products by research analysts (RAs), investment advisors (IAs), and stock brokers.
- As per SEBI’s circular, a Credit Rating Agency (CRA) will be recognised as a PaRRVA in terms of Regulation 12A of the ‘SEBI (Credit Rating Agencies) Regulations, 1999’ (“CRA Regulations”) read with Regulation 16E of the Intermediaries Regulations.
- In addition to that, such CRA engages with a recognized Stock Exchange (SE) will act as PaRRVA Data Centre (“PDC”).
Key Features:
i.Eligibility Criteria for CRA to act as PaRRVA: It must have minimum 15 years of past experience; minimum net worth of Rs 100 crore; investor grievance redressal mechanism including Online Dispute Resolution (ODR) mechanism; and 250 or above issuers should have obtained ratings for debt securities.
ii.Eligibility Criteria for SE to act as PDC: It must have minimum 15 years of past experience; minimum net worth Rs 200 crore; must have nation-wide terminals; and investor grievance redressal mechanism including ODR mechanism.
iii.Key Functions of PaRRVA: As per SEBI’s circular, PaRRVA will primarily be responsible for defining verification methodologies, managing disputes, and grievances, and maintain records of verified data for minimum 5 years.
- SEBI has further clarified that any display of risk-return metrics verified by the PaRRVA, must include appropriate disclaimers. These disclaimers must include important notes like: clarifying the past performance is not indicative of future results; verified returns do not guarantee assured returns, among others.
- Also, disputes between the PaRRVA and intermediaries will 1st be resolved through internal mechanisms and unresolved issues can be referred to the ODR platform.
iv.Key Functions of PDC: The PDC is entrusted with the responsibility to collect data from financial entities like Mutual Funds (MFs), and SEs. It will also be responsible to develop and maintain the verification system while ensuring data security and confidentiality.
v.Setting Up of Oversight Committee: PaRRVA will set up an oversight committee within 2 months of getting in-principle approval from SEBI.
- The committee will mainly be responsible for monitoring the activities of the CRA as PaRRVA and the SE as PDC.
- Also, SEBI have the authority to conduct regular inspections and enforce compliance of the framework.
About Securities and Exchange Board of India (SEBI):
It is a statutory body and market regulator, which controls the securities market in India. It was constituted as a non-statutory body on April 12, 1988 through a resolution of the Government of India (GoI) and was established as a statutory body in 1992.
Chairperson- Tuhin Kanta Pandey
Headquarters- Mumbai, Maharashtra
