The Securities and Exchange Board of India on Tuesday said mis-selling (by hiding risk factors) of financial products was a serious issue which warranted regulatory intervention.
“There is the issue of financial products being mis-sold. And I think this is a serious regulatory issue,” SEBI Chairman C. B. Bhave said at the Symbiosis Institute of Business Management’s national finance summit here.
Several firms selling financial products marketed them in such a way that the products looked attractive. However, companies hide the risk factors involved in the said products (mis-selling).
Pointing out that there was a tremendous incentive for financial intermediaries to mis-sell financial products, he said it was the responsibility of regulators to see whether this kind of mis-selling was going on in the market or not and what needs to be done about it.
“We worry about it in the mutual fund industry and the Reserve Bank worries about it... but this is a constant worry,” Mr. Bhave said, adding that “this is an issue we have to address.” He said during global financial crisis no payment crisis happened on Indian bourses and transactions settled smoothly. “We were fortunate that during the entire episode of the financial crisis in 2008, the transactions on the bourses were settled smoothly. We were 100 per cent confident that transactions in the market will be settled, whether share prices went up or down,” Mr. Bhave said.
However, SEBI would be vigilant and pay attention to the settlement mechanism to ensure smooth functioning of the market, Mr. Bhave said.
The recent financial crisis had taught many lessons, including on financial innovation and borrowing money to invest in securities (leverage), he said. During the global meltdown, another issue that came up was the “so-called financial innovation”, he said.
