Mumbai, India's market regulator, the Securities and Exchange Board of India (SEBI), is taking a high-tech approach to combat mutual fund misselling. SEBI Chairperson Madhabi Puri Buch announced the development of an artificial intelligence (AI) tool designed to identify instances of misselling by mutual funds. She highlighted a recent case where a 90-year-old individual was sold a product with a lengthy seven-year lock-in period, emphasizing that algorithms would play a pivotal role in flagging such cases.
Speaking at the fourth Global Fintech Fest in Mumbai, Buch acknowledged the complexity of the issue, emphasizing the need for intelligence in addressing misselling concerns. The AI algorithm under development will possess the necessary tools to detect misselling practices, including the ability to identify scenarios like the aforementioned case involving the elderly individual.
Currently, mutual funds regularly submit essential data to SEBI to demonstrate compliance with regulations. Buch noted that a "nil report," indicating no violations, is considered ideal. However, she pointed out that misselling incidents might slip through the cracks in rule-based supervision, making the AI tool a crucial addition to SEBI's regulatory arsenal.
Buch expressed optimism about the potential of AI in enhancing investor protection, stating, "As we move to using AI to analyze the data, we hope that we will also find the ability to monitor these things (misselling) in the interest of the investors."
In addition to combating misselling, Buch also mentioned SEBI's interest in introducing fractional ownership of shares. However, she clarified that the current legal framework does not permit this innovative approach. Although SEBI is eager to embrace such advancements through its innovation sandbox, regulatory changes at the legislative level, including amendments to the SEBI Act and the Companies Act, are required to make fractional ownership a reality.
SEBI's commitment to harnessing AI to safeguard investors and ensure market integrity reflects the regulator's forward-thinking approach in a rapidly evolving financial landscape. The development of this AI tool signifies a proactive step in addressing issues related to mutual fund misselling, ultimately bolstering investor confidence in India's financial markets.
As SEBI continues to embrace technology and explore innovative solutions, the financial industry in India can look forward to a more robust and investor-friendly regulatory environment in the future.
