SEBI issues regulations for digital platforms facilitating transactions in direct mutual funds

On June 13, the Securities and Exchange Board of India (SEBI) released a regulatory framework for execution-only platforms (EOP). EOPs are digital platforms that allow transactions in direct plans of mutual funds without the help of distributors. The list includes apps like Groww, Jupiter Money, and Paytm Money, to name a few. Why it matters: SEBI says that investors using these digital platforms are not the platform’s clients under SEBI (Investment Advisers) Regulations, 2013 or SEBI (Stock Brokers) Regulations, 1992, and as a result of that, may not have recourse or protection for the risks associated with the transactions they make. This regulatory framework is an attempt to provide this protection to investors. Who gets to operate as an EOP: To operate as an EOP, a platform needs to register with SEBI or the Association of Mutual Funds in India (AMFI). The platform must also facilitate non-financial transactions, such as the facility to change email addresses, contact numbers, or bank account details. The platforms must not provide regular schemes of mutual funds (quick context: regular schemes are bought through mutual fund distributors who advise the investor and charge a distribution commission). Entities operating as EOPs must apply for registration within three months of the regulations coming into force i.e. September 1, 2023. The regulations specify that there are two kinds of EOPs— Category 1 EOP and Category 2 EOP. Category 1 EOP: These EOPs must be corporate entities registered with AMFI and must fulfill the eligibility criteria specified by AMFI. They should…

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