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.