SEBI Fines Monetary Solutions Rs 25 Lakh For Regulatory Breaches

Employees of Monetary Solutions

During the inspection, it was observed that seven employees associated with the Monetary Solutions, who dealt with clients, did not possess the requisite qualifications and certification as mandated by SEBI. This non-compliance was in violation of Regulation 15(13) read with Regulation 7 of the IA Regulations, 2013, and Clauses 1, 2, and 8 of the Code of Conduct for Investment Advisers. These regulations states that an investment adviser and associated persons must always hold a certification from the National Institute of Securities Markets (NISM).

Non-Maintenance of Records

The SEBI's order stated Monetary Solutions charged fees from clients without executing any agreements and failed to maintain necessary records such as call recordings, client agreements, KYC documents, invoices, risk profiling, and email communications. This was a clear violation of Regulation 19(1) and 19(2) and Clauses 1, 2, 8, and 9 of the Code of Conduct for Investment Advisers, as specified under the Third Schedule read with Regulation 15(9) of IA Regulations, 2013, and SEBI Circular Ref No. SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020.

Monetary Solutions claimed that the data was stored on a hard disk, which was lost due to a failure and subsequently seized by SEBI. Despite being advised to provide evidence supporting this claim, t Monetary Solutions failed to do so. SEBI noted that records must be maintained either in physical or electronic form for a minimum of five years, as per the regulations, and the IA's failure to provide necessary documentation led to violation.

Selling Similar Products Concurrently

The SEBI's order stated that Monetary Solutions sold the same product to clients within a short span of time for overlapping service durations and sold the same service multiple times to clients. This practice was to defraud clients regarding dealings in securities. This was a violation of Regulation 3(d), 4(1), and 4(2)(s) of the PFUTP Regulations read with Section 12A(c) of the SEBI Act and Clauses 1 and 2 of the Code of Conduct for Investment Advisers.

Handling of Client Fees

SEBI observed that the Monetary Solutions charged fees from clients, which were received in the compliance officer's personal bank account. This violated Clauses 1 and 2 of the Code of Conduct as specified in Schedule III read with Regulation 15(9) of IA Regulations. Monetary Solutions contended that since the compliance officer was the sole proprietor, there was no bar on receiving fees in a personal account. However, SEBI regulations require IAs to act honestly and fairly in the best interests of clients and to maintain appropriate standards of conduct and adherence to proper procedures.

Provision of Free Trials

Monetary Solutions was also found to have provided free trials to clients. SEBI held that this violated paragraph 1(i) of SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2019/169 dated December 27, 2019, and Clauses 8 and 9 of the Code of Conduct.

Exorbitant Fees and Faulty Suitability Assessments

Monetary Solutions was also found to have charged exorbitant fees from clients without ensuring that the investment advice was appropriate for the client's risk profile and financial situation. This violated Regulation 15(1), Regulation 17(b), (d), and (e) of IA Regulations, and Clauses 1, 2, and 6 of the Code of Conduct.

Misleading Risk Profiling Questionnaire

The risk profiling questionnaire used by Monetary Solutions contained misleading and open-ended questions which prompted clients to fall into high-risk categories. SEBI noted tht this violated Regulation 16(d)(i) and (ii) of IA Regulations and Clauses 1, 2, and 8 of the Code of Conduct. The questions were found to be leading and framed to make clients opt for high-risk investments.

Operating from Unregistered Office

Monetary Solutions was found to operating from a location that was neither approved by nor informed to SEBI.