SEBI’s YES Bank order raises the issue of why so few cases of financial mis-selling attract action
Retail investors buying into risky products and burning their fingers has been the inevitable corollary to every large financial institution collapse and scams in India. But the regulators’ standard response has been to write new rules on product disclosures or to formulate toothless codes of conduct for intermediaries. Concrete enforcement action against intermediaries found to have deliberately misled investors, is rare. This is why it was good to see Securities Exchange Board of India (SEBI) quickly conclude its investigations on the mis-selling of YES Bank AT-1 bonds and impose monetary penalties on the bank and its wealth management staff last week.
Regulators on their part, need to introspect why so few cases of mis-selling attract deterrent action such as fines or de-licensing of intermediaries. If the difficulty of proving such cases is the reason, establishing a paper trail can help. But turf issues between regulators also cause many cases to slip through the cracks. While SEBI has drawn clear red lines between commission-earning distributors and fee-based advisors for mutual funds, RBI or IRDA have done little to prevent bank staff motivated by pay-based incentives from pushing unsuitable products to their captive clients. Financial regulators also need to shed their lackadaisical attitude towards promptly taking up investor complaints lodged through official channels. The Government must perhaps expedite the unified portal for investor complaints mooted in the Budget.