The Securities Exchange Board of India (SEBI) is taking significant steps to address the issue of misselling by mutual funds by developing an artificial intelligence (AI) tool. SEBI Chairperson Madhabi Puri Buch highlighted the complexity of the problem and the need for more robust regulatory oversight to protect investors.
One notable incident that underscored the urgency of addressing misselling involved a 90-year-old investor who was sold a product with a seven-year lock-in period. Such cases have raised concerns about the suitability of investment products for individual investors.
To combat misselling effectively, SEBI is working on AI algorithms that can identify instances of misselling, even in intricate scenarios like the one involving the elderly investor. While mutual funds are currently required to provide compliance data to regulators periodically, Buch pointed out that rules-based supervision may not catch all instances of misselling. The introduction of AI-based analysis and monitoring tools is expected to enhance SEBI’s ability to detect and prevent misselling, ultimately safeguarding the interests of investors.
In addition to addressing misselling, SEBI is exploring the concept of fractional ownership of shares. However, Buch noted that the existing legal framework does not permit such arrangements. To enable fractional ownership, changes would be required to both the SEBI Act and the Companies Act.
SEBI’s efforts to leverage AI for monitoring mutual fund activities align with global trends in regulatory technology (RegTech). The financial industry is increasingly turning to AI-driven solutions to enhance compliance and investor protection. By embracing AI technology, SEBI aims to strengthen the oversight of mutual funds, improve transparency, and create a more secure investment environment for all stakeholders.
As the development of the AI tool progresses, SEBI will likely play a pivotal role in shaping the future of mutual fund regulation in India. Investors can look forward to a more robust regulatory framework that is better equipped to detect and prevent misselling, promoting trust and confidence in the mutual fund industry.
