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Sebi working on AI tool to curb misselling by mutual funds, says Buch

Sebi

The markets regulator Sebi is developing an artificial intelligence tool to aid in the detection of mutual fund misselling, according to its chairperson Madhabi Puri Buch, who spoke on Tuesday at the fourth Global Fintech Fest in Mumbai. 

She mentioned a recent instance of a 90-year-old being sold a device with a seven-year lock-in period as an example of misselling, and stated that algorithms will assist in identifying such occurrences. 

 ”We are working on the issue of misselling that may occur by a mutual fund distributor, an agent, or someone who is the mutual fund’s obligation,” Buch said. 

She acknowledged that this is a highly difficult problem that will require intelligence, and she added that the algorithm being developed will have the necessary capabilities to detect misselling, such as reporting the scenario of a 90-year-old being sold a product with a long lock-in term. 

“Artificial intelligence will enable us to take regulation to a level where risk management is almost tailor-made for an entity.” If the organization has effectively managed its risk, the level of regulation will be automatically low. “AI will enable us to transition from risk-based supervision to risk-based regulation to segmented regulation to granular regulation, making life much easier for all regulated entities,” she said. 

Sebi

At the same time, Buch stated that there may be misselling that goes undiscovered in rule-based supervision, which will be detected by the AI tool. 

”As we progress toward employing AI to analyze data, we want to find the ability to monitor these things (misselling) in the interest of investors,” she said. 

Meanwhile, Buch stated that the regulator is also interested in introducing fractional ownership of shares, but the current legislative framework does not permit it. 

Buch went on to emphasize the significance of developing resilient financial systems and exploiting fintech’s potential to drive economic growth.  

“Incumbent entities are undergoing a massive transformation and are morphing more and more into fintech companies in the way they look, feel, and speak,” Buch said of current entities in the fintech field. Even our stock exchanges are become fintech enterprises. In terms of content, some mutual fund systems are nothing more than fintechs. Because of the cash flows, personnel, and stability of their conventional businesses, these incumbents have changed into rocket ships when they apply the concepts of new technology and modern design thinking. This evolution is continuous.” 

Buch stated about the T+1 settlement, “India is the first jurisdiction in the world that has moved to the T+1 settlement.” We’re talking about one-hour settlements, which are a step toward instantaneous settlement. You will notice all of this in a relatively short amount of time. Something traditional will now evolve into something quite modern and current. It will only be a matter of time before tasks can be completed in minutes. This is true for the market as much as the regulation.”