SEBI’s New Agency PaRRVA Will Help Verify Past Risk-Return Performance Metrics

byPriyanka JuyalDecember 19, 2024
Synopsis: 
  • SEBI launches the Past Risk and Return Verification Agency (PaRRVA) to verify performance claims of financial service providers.
  • The service is voluntary and will verify performance on a prospective basis.
  • PaRRVA will begin with a two-month pilot phase.
  • The agency aims to improve transparency and credibility for research analysts, investment advisors, and algorithmic trading services.

SEBI Announces Launch of Past Risk and Return Verification Agency (PaRRVA)

The Securities and Exchange Board of India (SEBI) has officially launched the Past Risk and Return Verification Agency (PaRRVA), a new initiative aimed at validating performance claims made by financial service providers. This agency, set up as a Performance Validation Agency (PVA), will allow entities like Research Analysts (RAs), Investment Advisors (IAs), and Algorithmic Trading services to seek verification for their risk-return metrics.

According to SEBI’s press statement issued after its Board meeting on December 18, the agency will operate under a Credit Rating Agency (CRA), with a recognized stock exchange serving as the PaRRVA Data Centre (PDC).

What is PaRRVA?

PaRRVA is a Performance Validation Agency (PVA) that will validate the risk-return metrics (performance claims) made by financial service providers. The agency will be managed by a Credit Rating Agency (CRA), with a stock exchange functioning as its Data Centre. PaRRVA will verify these claims only on a prospective basis, meaning the validation will apply only to future claims starting from the day an entity begins using PaRRVA’s services.

The Press Release said:

PaRRVA shall carry out the verification of risk-return metrics for Investment Advisors (IAs), Research Analysts (RAs), and Algorithmic Trading, and those persons permitted by the Board to offer these services. It is clarified that the risk-return metrics verification shall be made only on a prospective basis from the effective date of opting for the PaRRVA service.

Pilot Phase and Next Steps

PaRRVA will kick off its operations with a two-month pilot phase to collect feedback from stakeholders and improve its systems. After this phase, it will be fully operational for those who wish to validate their performance data.

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Why Is PaRRVA Needed?

PaRRVA was developed in response to requests from SEBI-registered intermediaries, including research analysts, investment advisors, and algorithmic trading services, who wanted a way to verify their performance and establish credibility with investors. By validating their risk-return metrics, these professionals can gain more trust from clients and stand out in a competitive market.

In a consultation paper, SEBI mentioned that providing performance validation will allow these intermediaries to establish credibility while also protecting investors from false or unverified claims.

Key Highlights:

What’s Next?

With the introduction of PaRRVA, SEBI aims to improve transparency in the financial services sector by verifying past performance claims and ensuring that investors can trust the data they receive. This service will help financial service providers showcase their validated results, which could attract more clients and enhance investor confidence.

By giving financial professionals the option to validate their past performance, PaRRVA will ensure that only verified claims are presented to investors, offering a reliable way to evaluate the credibility of services in the investment space.

Disclaimer: The information provided in this article is for informational purposes only and does not constitute professional advice or an endorsement of any particular product or service. While we make every effort to ensure the accuracy of the details shared, the content is based on publicly available information and reliable sources. Readers are encouraged to verify the details independently and consult with a professional advisor before making any decisions. Please exercise caution and stay informed when making any decisions.

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