Markets regulator Sebi is building an artificial intelligence tool to help detect misselling by mutual funds, its chairperson Madhabi Puri Buch said on Tuesday at the fourth Global Fintech Fest in Mumbai. She cited a recent incident of a 90-year-old being sold a product with a seven-year lock-in period to illustrate an instance of misselling, and said algorithms will help flag such cases. ''We are working on the question of misselling that may happen by a mutual fund distributor or an agent or by someone who is the responsibility of the mutual fund,'' Buch said. She admitted that this is a very complex problem requiring intelligence, and added that the algorithm being built will have the essential tools to detect misselling like flagging the case of a 90-year-old being sold the product with a long lock-in period. “Artificial Intelligence will allow us to take regulation to a level where risk management will almost be custom-fit for an entity. If that entity has managed its risk well, then the level of regulation would be automatically low. AI will give us the ability to move from risk-based supervision to risk-based regulation to segmented regulation to a granular-level regulation, which will make life a lot easier for all regulated entities,” she said. At present, mutual funds submit essential data to Sebi periodically with respect to compliance with regulations. A ''nil report'' is considered the best, Buch said. At the same time, Buch said there may be misselling that may go unnoticed in the rule-based supervision and those same will be detected with the AI tool. ''As we move to using AI to analyse the data, we hope that we will also find the ability to monitor these things (misselling) in the interest of the investors,'' she said. Meanwhile, Buch said the regulator is also keen to introduce fractional ownership of shares but the current legal set up does not allow it. ''Somebody came with that (idea) and we thought it was good... we would have wanted to welcome them into the innovation sandbox but it is not permitted in the Sebi Act itself. ''It cannot be done until we change the Act -- not just the Sebi Act, but also the Companies Act,'' she said. Buch elaborated on the importance of building resilient financial systems and leveraging the potential of fintech to drive economic growth. Speaking about the role of existing entities in the fintech space, Buch elaborated: “Incumbent entities are undergoing a massive transformation and are morphing more and more into fintech companies in the way they look, feel and speak. Today, even our stock exchanges are fintech companies. Some of the mutual fund platforms are nothing but fintechs in terms of substance. These incumbents have a huge advantage because of the cash flows of their traditional businesses, manpower and stability, so when they apply the principles of modern technology and modern design thinking, they have actually morphed into rocket ships. This transformation is ongoing.” On T+1 settlement, Buch said: “India is the first jurisdiction in the world that has moved to the T+1 settlement. We are talking about one-hour settlements and even that is a stepping stone to instantaneous settlement. You will see all this in a reasonably short period of time. Something that is traditional is now going to morph into something very modern and contemporary. It is only a matter of time before things can be done in minutes. This is true for both the market and the regulator.” With inputs from PTI
