'See SEBI norms for brokers' power of attorneys soon'

Market regulator Securities and Exchange Board of India (SEBI) is keeping a close watch on rising investor complaints on the misuse of Power of Attorney (PoA) by brokers. SEBI Wholetime Member MS Sahoo spoke to CNBC-TV18 on the issue.

Here is a verbatim transcript of the exclusive interview with MS Sahoo on CNBC-TV18. Also watch the accompanying video.

Q: There are concerns regarding the misuse of power of attorneys by brokers.

A: We are not oblivious to the concerns arising from misuse of power of attorneys. We had internal consultations and based on that we will be issuing the appropriate guidelines

Q: The basic concept of why Power of Attorney became necessary was when we moved to rolling settlements, when the time period for settling your trade had got crunched to as low as two days. But the manner in which these agreements have been drafted, they are very complicated and secondly some of those agreements are so far reaching, have you at SEBI tried to identify what is the fault in those agreements?

A: Yes the need for power of attorney was much more at one point of time but that need has not disappeared altogether. The main problem is that these power of attorneys have been quite omnibus kind, very open ended and very general. The need is to restrict and have a very limited purpose specific power of attorneys.

For example, we have to say that this power of attorney can be used only for transferring securities and funds for settlement purposes, for margin purposes, for transaction on ones own account, in ones own bank accounts. If you have such restrictions, the possibility of misuse will reduce.

While doing so, we have to do two more things. We have to put the onus on the broker to always prove that he has used the power of attorney in the best interest of the investor and not exceeded the authority given there. Simultaneously we have to also alert the investors and make the investors aware about the care and precautions they should take while writing a power of attorney and while honoring it. They must always ensure that they get a copy of the power of attorney.

Q: Going by the data that you have had privileged to in terms of complaints that you have received and redressed, do you think the power of attorney issue is a serious issue?

A: Yes it is one of the main reasons for the complaints we receive. But we find with Sebi's intervention we have been able to redress many complaints. If I give you some figures, last year we received about 50,000-52,000 complaints but we redressed about 70,000 complaints. That means we redressed some of the complaints received in the previous years.

So, we are improving our mechanism also to reduce the investor grievances.

We are currently under the discussion stage and we are planning to come out with a guideline, which will have many dos and don'ts kind of thing which will alert the investor to take precautions, and which will also limit the confines of the PoA, Power of Attorney, put obligations on the brokers & depository participants to be responsible for the use of PoAs. For example, there will be no kind of PoA in favour of their employees.

Q: So is three-six months a reasonable time to expect this to happen or could be more than that?
A: In the regulatory world we do not give any time frame. But three-six months for this kind of problem, I consider is quite reasonable.