Sebi mulls stronger norms to check misuse by POAs by brokers

To check any fraudulent use of investor accounts by brokers, capital markets regulator Sebi plans to tighten norms for the Power of Attorney taken by them from their clients including by colour-coding such PoAs as per the risks involved in such transfer of powers.
A number of measures have been suggested by an expert group set up by Securities and Exchange Board of India to ring -fence the POAs given by investors to their brokers from any possible misuse that are under consideration of the regulator, sources said.
Sebi had last tightened its norms in 2010 for POAs signed between brokers and their clients, but further changes have become necessary to the regulatory framework in this regard to safeguard the investors' interest in the marketplace.

The existing guidelines already define the acts that can or can't be performed by a stock broker or a depository participant in pursuance of rights conferred by the client by execution of POA.
However, there have been cases of significant misuse of such POAs and there have been complaints that investors are misled into signing these agreements without being informed about the risks involved.
To check these malpractices, the expert group has suggested multiple POAs for different kinds of operational permissions, colour coding of such agreements as per risks involved and limited validity period, in place of the current practice of one single POA being signed for all purposes.

Another proposal relates to digitisation of POA and storage of its soft copy with exchanges so that it can be easily retrieved whenever needed for inspection and probes.

However, brokers are concerned that these moves could result in additional costs and extra workload for them.
They are also of the view that multiple documents would be against the simplification of broking/depository accounts related documents initiatives taken by Sebi in recent years.
The colour-coding of POAs is aimed to alert the investors before signing it so as to enable him or her to adopt cautious approach while executing the agreement.
Already, stock brokers are required to follow a standard format of POA which are executed by the investors.

The panel has also suggested that the validity period of the POAs can be limited to three or six months. As per the current norms, the investor is entitled to revoke the POA at any time, but the validity remains in force forever otherwise.
The total number of registered stock brokers stood at 9,411 at the end of last fiscal 2013-14, while there were nearly 52,000 registered sub-brokers.
During last year, 217 stock brokers and sub-brokers were inspected, up from 201 in the previous fiscal, by Sebi.
Stock exchanges also undertook inspection of hundreds of members during the year, followed by directions for necessary corrective steps at the concerned entities.