Zerodha Broking Ltd has implemented a new certification requirement for its authorized persons (APs), mandating that they successfully complete the NISM Series X-A and X-B examinations to qualify for a Registered Investment Advisor (RIA) license.
This change comes in response to recent regulatory updates from the Securities and Exchange Board of India (SEBI), which have led Zerodha to discontinue its referral program.
Now, APs must maintain a minimum client base of 500 and generate monthly commissions of at least ₹50,000 to remain compliant. In contrast, other brokerage firms like Upstox and Angel One have established their own distinct criteria for APs, while Groww has opted not to utilize APs in its operational model.
To navigate these new regulations, some brokers are exploring creative solutions, such as having family members of financial influencers register as APs, thereby allowing them to sustain multiple brokerage affiliations.
This shift in the industry follows SEBI’s intensified scrutiny of financial influencers on social media, who have previously played a significant role in driving business for brokerage firms by earning commissions based on the trading activity of their followers.
On August 22, Zerodha officially terminated its widely-used referral or affiliate program, a decision prompted by a circular from the National Stock Exchange of India (NSE) issued on August 14, which stipulated that all individuals earning referral fees must be registered as APs with the respective brokers and stock exchanges.
This move aligns with a July 2024 decision by the SEBI board, which called for a clear demarcation between regulated and unregulated entities, effectively severing financial ties such as affiliate commissions.
What are the benefits of these certification requirements?
The certification criteria for authorized persons (APs) to successfully complete the NISM Series X-A and X-B examinations present a multitude of advantages.
Firstly, these certifications equip APs with a comprehensive grasp of the securities markets, relevant regulations, and ethical standards, thereby enhancing their ability to offer informed advice and superior services to clients.
Furthermore, certified APs gain a significant boost in credibility, as clients and industry peers perceive them as more reliable and trustworthy, which can lead to heightened client confidence and an influx of business opportunities. Additionally, adhering to these certification standards ensures that APs remain compliant with SEBI regulations, effectively minimizing the risk of legal complications and penalties for both the APs themselves and the brokerage firms they represent.
The journey of preparing for and passing these exams also fosters professional growth, promoting a culture of continuous learning and keeping APs abreast of the latest industry developments and regulatory changes.
Lastly, the certification process establishes a benchmark for knowledge and competence among APs throughout the industry, cultivating a more consistent and professional atmosphere that ultimately benefits the entire securities market.
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