Investment adviser deposit

Before SEBI grants an Investment Adviser a certificate of registration, one of the things it checks is whether the applicant has actually set aside a deposit. This is not a fee paid to SEBI, it is money kept aside as a safety net for the adviser's own clients.

The deposit sits with a scheduled bank, marked as lien, a hold that cannot be touched without permission, in favour of a body SEBI has recognised for administering and supervising investment advisers.

Its purpose only comes up if things go wrong: if a client wins an arbitration or conciliation case against the adviser and the adviser does not pay, the deposit is what the client's dues can be recovered from.

SEBI's Investment Adviser Regulations, under regulation 8, require an applicant to fulfil deposit requirements as a condition of eligibility for registration, checked alongside qualifications, certification and infrastructure when SEBI decides whether to grant a certificate at all. The exact sum is not fixed permanently in the regulation itself; the workbook states only that SEBI specifies it from time to time, with separate SEBI guidelines covering the deposit requirement in more detail.

What is fixed is the deposit's purpose: it is available for utilisation specifically where the adviser fails to pay dues arising from arbitration or conciliation proceedings, including under the Online Dispute Resolution mechanism, rather than being a general-purpose fund SEBI can draw on for any reason.

An individual applying for SEBI registration as an Investment Adviser sets aside the required deposit with a scheduled bank, marked as lien in favour of the SEBI-recognised body that administers and supervises advisers, one of the eligibility conditions SEBI checks under regulation 8 before granting the certificate of registration, alongside the applicant's qualifications and infrastructure.

Years later, a client wins an arbitration award against this adviser through the Online Dispute Resolution process, but the adviser does not pay up voluntarily. The client's dues can then be recovered from this very deposit, the reason it was required at registration in the first place, long before any dispute existed.

Chapter 18 (Key Regulations), sections 18.6.2 and 18.6.6 (Deposit), name regulation 8 as the source of the deposit requirement and describe its lien structure and its use for arbitration/conciliation dues. Expect a question on what the deposit is used for, or one testing that the amount itself is set by SEBI from time to time, not fixed in the regulation.

• The deposit is not a registration fee paid to SEBI — it stays with a scheduled bank as a lien, for the benefit of clients with an unpaid arbitration or conciliation award, not for SEBI's own use.
• The workbook does not give a rupee figure for the deposit — unlike the adjacent, unrelated 300-client/Rs 3 crore trigger for in-principle registration, the deposit amount itself is left to SEBI to specify from time to time; do not invent a number on the exam.
• The deposit's stated use is specifically arbitration and conciliation dues, including through the Online Dispute Resolution mechanism, not a general compensation fund for any client grievance.