India’s securities regulator will prohibit intermediaries such as stock brokers, mutual fund distributors and investment advisers from pooling money and fund units for mutual fund transactions starting April 2022 in order to safeguard investors.
The move comes two years after the Securities and Exchange Board of India (Sebi) banned a local brokerage from taking new business for alleged misappropriation of investors’ money.
Sebi says in a circular dated October 4 that the ban on fund pooling by intermediaries is “to protect the interest of investors in securities and to promote the development of, and to regulate the securities market”.
It adds that for ease of transactions, funds can be routed through payment aggregators authorised by the Reserve Bank of India or Sebi-recognised clearing corporations.
In November 2019, the regulator barred Mumbai-based Karvy Stock Broking Ltd from taking fresh business, alleging that the firm misappropriated money and securities belonging to its investors to fund its property unit Karvy Realty.
According to Sebi, Karvy had “violated norms, including transferring client shares to itself and pledging client shares to raise money, which it diverted to its real estate arm”.
There have been no public updates of the matter since then. Karvy’s website is still operational.