India’s
securities regulator rolled out a new payment verification system this week
designed to help retail investors distinguish between legitimate brokers and
unauthorized entities operating in the country’s financial markets.
SEBI Launches New Payment
System to Help Indian Investors Spot Legitimate Brokers
The
Securities and Exchange Board of India (SEBI) announced that registered
intermediaries must adopt standardized UPI payment addresses using a
distinctive “@valid” handle by October. The system includes a visual
indicator – a green triangle with a thumbs-up icon – that appears when investors
make payments to verified market participants.
The move
addresses growing concerns about unauthorized entities targeting retail traders
in India’s expanding securities market. Investors will now see the verification
symbol when transferring funds to legitimate brokers, mutual funds, and other
registered intermediaries through the Unified Payments Interface system.
“This
mechanism shall provide investors with the option to transfer funds directly to
the requisite bank accounts of intermediaries that have been validated with
SEBI,” the regulator stated in its circular. The system aims to assure
investors “that their payments are being made to the verified and
registered market intermediaries.”
New Payment Structure
Takes Shape
Under the
framework, legitimate brokers will receive UPI addresses following a specific
format. A broker named “ABC” would get an address like
“abc.brk@validhdfc” – combining their business name, a category
abbreviation, and the new “@valid” handle linked to their bank.
The system
covers various types of registered intermediaries including stock brokers,
mutual fund companies, portfolio managers, research analysts, and investment
advisers. Each category gets its own abbreviation to help investors identify
what type of service provider they’re paying.
SEBI worked
with the National Payments Corporation of India and major banks to develop the
system. Fifty-two banks, including State Bank of India, HDFC Bank, and ICICI
Bank, can issue the validated addresses to registered intermediaries.
The
regulator set daily transaction limits of up to 500,000 rupees ($6,000) for
capital market transactions through the new system, reflecting UPI’s
retail-focused design.
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Compliance Timeline
Established
Intermediaries
have until September to obtain their validated UPI addresses and must begin
using them by October 1. They can continue accepting payments through existing
methods until December, when old payment handles must be discontinued.
The system
includes a verification tool called “SEBI Check” that lets investors
confirm UPI addresses and bank account details by scanning QR codes or entering
payment information manually.
Banks must
complete system modifications by late July, followed by testing phases through
September. The regulator emphasized that while investors can choose their
preferred payment method, using the new verified system provides additional
security assurance.
Market
infrastructure institutions and registrar companies must also promote awareness
of the new system among investors through various communication channels
including websites, SMS, and social media.
Additional Pressure for
CFD Brokers in India?
India’s
regulatory environment continues to pose challenges for the FX and CFD
industry. The country does not permit contracts for difference (CFD) or foreign
exchange (FX) trading under domestic regulatory frameworks. SEBI currently does
not authorize retail trading in CFDs through locally registered brokers.
Despite
this, many offshore brokers outside SEBI’s jurisdiction continue to provide CFD
trading services to Indian clients. However, recent regulatory changes
concerning payment processing and the identification of registered entities may
further restrict access, complicating efforts by foreign firms to serve Indian
residents.
Indian
authorities have consistently cautioned
against trading with unregulated brokers. Previously, both the National
Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) issued
advisories warning investors about the risks of engaging with unlicensed
platforms offering derivative products such as CFDs.
This article was written by Damian Chmiel at www.financemagnates.com.
