The Securities and Exchange Board of India (SEBI) has unveiled plans to establish a comprehensive framework, set to be implemented by April 1, allowing trading members to proactively block online access to trading accounts associated with suspicious activities exhibited by clients.
This move aims to address the growing concern of illicit activities within the capital markets and enhance the regulatory measures in place.
SEBI disclosed that the framework will be developed collaboratively by the Brokers’ Industry Standards Forum (ISF), in conjunction with stock exchanges and the regulatory body itself, as outlined in a recent circular.
The forthcoming framework is anticipated to encompass detailed guidelines regarding the policies and procedures for the voluntary freezing or blocking of a client's online trading account.
Among the key components of the framework are provisions for communication methods, enabling clients to request the blocking of their accounts, the issuance of acknowledgement upon receipt of such requests, and a clearly defined timeframe for processing the requests and subsequently blocking the trading accounts.
Additionally, SEBI highlighted that trading members will be required to take specific actions upon receiving a request for freezing or blocking an account, along with delineating the process for re-enabling clients for trading.
The evolution of the stock broking industry in India from traditional call-and-trade practices to online platforms has brought to light the necessity for such a framework. Investors now utilize login IDs and passwords provided by trading members for online transactions.
SEBI acknowledged that, despite instances of investors detecting suspicious activities, the majority of trading members lack the facility to block accounts.
To address this gap, the regulatory body emphasized the urgent need for a mechanism akin to the blocking of ATM cards and credit cards.
Highlighting the existing facility for voluntary blocking and freezing of demat accounts for investors, SEBI has decided to extend this provision to trading accounts as well. The objective is to streamline the process, providing investors with a tool to safeguard against fraudulent activities, thereby enhancing the ease of doing business and investing in the market.
SEBI has set a deadline of April 1, 2024, for the Brokers’ Industry Standards Forum to finalise and implement the framework. Furthermore, the regulatory body has instructed stock exchanges to ensure that trading members comply with the guidelines outlined in the framework starting from July 1, 2024.
In a separate circular, SEBI addressed concerns related to the monitoring of clients' funds held by stockbrokers.
The regulatory body emphasized the need for a unified mechanism to monitor funds, aiming to eliminate inefficiencies resulting from duplicate monitoring mechanisms and simplify the data uploading process for exchanges.
This directive seeks to strengthen further the regulatory oversight and operational efficiency within the capital markets.
