Sebi Framework For Registration Of PaRRVA: To Control Misleading Return Claims, Enhance Investor Confidence

The Securities and Exchange Board of India (Sebi) on April 4 announced the framework for the registration of the Past Risk and Return Verification Agency (PaRRVA), which will be responsible for verifying performance claims made by investment advisors, research analysts, and algo providers. According to the circular, the main objective of PaRRVA is to control misleading investment return claims and enhance investor confidence by providing a reliable means of verifying the performance metrics of financial service providers. 

While a credit rating agency (CRA) will function as PaRRVA, a well-known stock exchange will serve as the PaRRVA Data Centre (PDC). This arrangement will ensure that the verification process is managed by entities with established skills and infrastructure. The rating agency needs to be present for 15 years, to be eligible for PaRRVA, and have a net worth of Rs 100 crore, with at least 250 issuers with obtained ratings for debt securities. 

During its December board meeting, Sebi approved the establishment of a validation agency. The market regulator also issued guidelines for the operation of the verification body. 

With a two-month pilot phase, PaRRVA will start operations. During this period, feedback from stakeholders will be taken to refine technological processes and systems, ensuring a stable and streamlined experience. 

Though it is voluntary to utilize PaRRVA’s verification services, entities that choose not to participate will not be allowed to make claims about their past risk-return metrics in their marketing or client communications. 

Sebi said on its website that all claim statements, whether electronic or physical, of regulated persons, must contain a link or QR code providing details of the overall summary of risk-return metrics on the website of PaRRVa. 

Roles And Responsibilities Of PaRRVA

The roles and responsibilities of PaRRVA shall be broadly as under:

(i) Defining methodology for computation of risk-return metrics;

(ii) Formulating verification and operational workflow, including data points to be obtained from concerned regulated persons;

(iii) Preparation of Business Requirement Document (“BRD”) for development of verification system and conducting User Acceptance Testing (“UAT”);

(iv) Entering into agreements with the clients;

(v) Entering  into  tripartite  agreements/multilateral  agreements  as may  be required, with PDC, MIIs, and other agencies providing critical data required for the verification process

(vi) Addressing and resolving queries/grievances from investors, clients/ regulated persons;

(vii) Handling disputes related to the verification process;

(viii) Establishing connectivity with PDC for receiving verified risk-return metrics for display on its website and for sharing with the clients/investors; 

(ix) Storing and managing the verified risk-return metrics with appropriate information security standards; 

(x) Making the verification methodology available to the public on its website.