SEBI’s New Payment Mechanism Aims to Protect Research Analysts from Account Freezes

Research analysts (RAs) are facing an unexpected risk in their profession—the possibility of having their bank accounts frozen indefinitely. Recent cases have emerged where clients, alleging fraud, have filed complaints with cybercrime police. Based on limited information, authorities have proceeded to lock RAs out of their accounts, impacting their businesses significantly.

Adding to the complexity, these complaints may be lodged at police stations far from the RA’s location, making it difficult for them to follow up or contest the actions taken against them. This has created a significant challenge for analysts operating in the market.

Proposed SEBI Payment Mechanism

To address such concerns and enhance transparency, the Securities and Exchange Board of India (SEBI) has proposed a new payment mechanism for market intermediaries. This initiative aims to safeguard investors from fraudulent entities and ensure that payments are made only to genuine SEBI-registered intermediaries.

Under the proposal, RAs, investment advisors (IAs), mutual funds, and brokers will be assigned special Unified Payments Interface (UPI) addresses for collecting their fees. These unique UPI identifiers will ensure secure and verifiable transactions between investors and market professionals.

SEBI’s consultation paper highlighted the issue of unregistered entities misleading investors and siphoning off money for personal gains. The regulator emphasised the need to restrict such unauthorized activities and create a legitimate, efficient, and convenient payment process for investors.

Structure of the Proposed UPI Mechanism

The proposed UPI identifiers will consist of a username and a handle, separated by an “@” symbol. The username will be an alphanumeric ID representing the intermediary, while the handle will be a unique identifier linked to their bank.

For example:

• A broker’s UPI ID may be abc.bkr@payrighthdfc
• A mutual fund’s UPI ID may be abc.mf@payrighthdfc

This structured system will help investors easily identify legitimate SEBI-registered intermediaries and reduce the risk of falling prey to unauthorised entities.

Existing Payment Platform and Industry Concerns

SEBI had already launched a centralised payment platform in September 2024, developed in collaboration with BSE Ltd. Currently, this platform is optional for investors making payments to RAs and IAs. The regulator has, however, urged the supervisory body to encourage broader adoption of this system.

While this platform is beneficial in ensuring safe transactions, industry experts have pointed out certain operational challenges. Nonetheless, SEBI has indicated that if the bank accounts of RAs and other intermediaries fall under the new UPI-based system, they will be able to provide support in cases of unwarranted bank account freezes.

With the proposed mechanism, SEBI aims to fortify investor protection while addressing the operational challenges faced by research analysts and other market intermediaries.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.