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MUMBAI : The Securities and Exchange Board of India (Sebi) is not in favour of fintech firms creating exit barriers for customers, said Madhabi Puri Buch, chairperson, Sebi, on Wednesday.

Terming it as ‘Abhimanyu complex’, Buch said: “If any business model is based on an assumption that once a customer is in and, if the companies suggest that there will be no exit for them, we will not like it…If your business model relies on building barriers to exit, it is unlikely to find favour with the regulator. It is an important principle that we follow. We believe whenever a customer has ease of entering, he also has the right to exit," she said while addressing the participants at the Global Fintech Fest.

The Sebi chief also said that the regulator was planning to create a facility along the lines of ASBA for the secondary market, which will be similar to the infrastructure created for initial public offerings (IPO) in order to reduce structural vulnerability.

At present, IPO investors use ASBA, or the application supported by blocked amount facility, wherein money leaves the investor’s bank account only after due allotment of shares by the company. Earlier, money used to be deducted from the account at the time of applying, and was refunded in case the shares were not alloted.

“We are now actively engaged in looking at an ASBA-like secondary market. If it can be done for primary markets, why can’t it be done for the secondary market. If you are buying shares and you have to settle, the money should not leave your account. It needs to be settled with T+1, following which money will be appropriately taken."

“So, the attempt is to reduce structural vulnerability, therefore, if the business model increases concentration risks and structural vulnerability chances are that the Sebi, sooner or later, will look at eliminating such business."

Emphasizing on the aspect of transparency, Buch said there was a paramount need for businesses to make necessary disclosures. “The question is for the investor to make an informed decision. He must have adequate information. Without information, how will one make an informed decision and therefore the issue of transparency is key."

Sebi is not in favour or against anything, provided that there is transparency in terms of disclosures and nothing which misleads the investors, she added.

Citing an example she said “ If someone claims that an algo delivers 350% returns, Sebi would want to engage with such entities to validate if they actually deliver such returns. If you are unable to validate such returns then your business model is under threat and will not be accepted by the regulator, she said.

Buch said if a business model relies on anonymity as a key selling proposition for the consumer it is not going to last.

On 2 September, Sebi said it wishes to stop the widespread practice of promoting past returns and profits.

Since Sebi ordered stock brokers to stop using platforms mentioning past or anticipated profits by 9 September, such promotions declined. However, the Telegram channels of strategy writers continue to advertise their profits and loss metrics. Sebi has now asked exchanges (monitoring broker compliance) to ensure the circular is implemented in letter and spirit, and a report is submitted within 60 days. If the order is not complied with Sebi will take penal action, it added.

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