Investor complaints against brokers declining

The number of investor complaints against brokers has been seeing a decline in recent years, with stronger regulatory oversight and rising markets.

Except for FY15, the numbers have been dropping since FY11. Exchange data shows it was about 6,500 in FY11 and fell to 4,700 in FY16. The first four months of this financial year have seen about 1,200 complaints.
In general, the number of complaints goes up in a bear market or when the markets are excessively volatile, said experts. When there is a sustained uptick, most complaints usually get resolved. The benchmark indices have seen a significant surge since September 2013, with the Sensex rising almost 50 per cent between then and now. However, there have been bouts of volality, particularly in 2015 when the market lost five per cent during the calendar year.

“The compliance environment has improved and brokers now have dedicated manpower to handle investor complaints and ensure speedy resolution of these,” added B Gopkumar, chief executive, Reliance Securities. Brokers now have a better back-end system in place and regulators have tightened the screws on compliance requirements. “There are regular audits being conducted and brokers come under closer scrutiny in case the number of complaints goes up,” said Prasanth Prabhakaran, head–retail broking, IIFL.

Till 2014, complaints pertaining to punching in wrong orders, as well as on unauthorised trades, were fairly common, says Prabhakaran. That has substantially reduced. About 90 per cent of the complaints are now on service issues and only 10 per cent relate to more serious ones like unauthorised trades, he says.

“In a broking business, where you are talking to customers almost daily, the chances of miscommunication which might result in wrong orders being punched remain high,” he added. Service-related complaints include those pertaining to changes in address and the Know Your Customer requirements. Several brokers have shut shop in the past few months due to high compliance costs, with the number of brokers in the cash segment almost halving in the past one year, show data from the Securities and Exchange Board of India.

The regulator is looking at proposals to further tighten compliance requirements and prevent broker-related fraud. These include the audit mechanism and a larger role for stock exchanges to monitor broking entities.