Numerous instances relating to fraud linked with Demat accounts are constantly being reported and addressed. When investors, or any individuals for that matter, are undertaking a money transfer, be it through the pathway of the national electronic fund transfer or any other, there is always the fear of fraud. In the past ten years, numbers of fraud cases online have increased with cases pertaining to brokers transferring units of mutual funds, using these as collateral. These are utilized to meet margin shortfalls on trades, and such practices take place, obviously, without any given investor’s consent.
Instances of fraud are prevalent in all streams where electronics funds transfer takes place, be it in the trading industry or the banking world. Furthermore, financial fraud is most prevalent while online transactions and the purchase of goods and services are concerned. Fraudsters on the loose are a major cause of worry for investors given that the quantity of investors in India is large, and amounts invested are even more substantial. Moreover, most investors heavily rely on Demat accounts simply for the convenience of transferring funds, stocks and securities.
Most transactions, if not all, are done online today, and these may be conducted with the utmost convenience. For example, Demat account opening has never been easier to do on bank websites or reliable brokerage platforms like Motilal Oswal, than it is now. However, with all the flexibility and ease you get, online transactions face exposure to fraudsters and hackers just waiting to scam people out of their hard-earned money. As fraudulent transfer has become a common occurrence, the Securities and Exchange Board of India (SEBI) has introduced new guidelines to prevent this. As an initial step, the rules for a PoA (Power of Attorney) agreement have been standardized, and a limited function PoA would be signed between clients and brokers (instead of the previous general PoA). This ensures that the authority of the broker is restricted to only transfer funds and securities for settlement purposes and nothing more.
- Restrictions on Money Transfer
Fraudulent use of the PoA gives an open chance of dubious practices to fraudsters. Holdings may still be permitted to be sold, but the sale of such holdings is kept restricted merely to the degree of the recovery amount that is due. Brokers cannot transfer securities and stocks for the purpose of off-market trades. Furthermore, trades are not allowed to be executed without prior consent of clients. Previously, on the client’s behalf, a broker had the freedom to conduct trades. Moreover, before new rules hit the system, a broker was allowed to keep a client’s shares in a common pooled account (to meet margin needs of other customers) instead of directly transferring them to the client’s own account after purchase.
The possibility of fraudulent transfer is not a fear now as the electronic system governing Demat accounts does not allow any transaction without a trail of audit left behind. Hence, any fraud can be detected these days. Besides this, when you invest with a reputable broker like Motilal Oswal, you can be worry-free.
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