By September 1, all brokers will have to retract the authorisations given by their existing clients through power of attorney (PoA) to facilitate the delivery of shares and funds.
According to a circular issued by the Securities and Exchange Board of India on April 23, 2010, the regulator framed a standard norm for PoA and asked the brokers to implement it by May 31, 2010, requiring them to revoke authorisations given by their clients by September 1.
“The stock brokers shall ensure to take necessary steps latest by September 1, 2010 to revoke those authorisations given by the existing clients to the stock brokers and depository participants (DP) through PoA that are inconsistent with the present regulations,” said the SEBI circular.
The circular also said that a PoA will not be a condition for availing broking or DP services and is merely an option available to the client for instructing his broker or DP to facilitate the delivery of shares and funds. PoAs are generally required for internet-based trading services, but almost all the brokers insist on clients signing a PoA even for non-internet services.
“It has come to SEBI’s notice that the clients are compelled to give irrevocable power of attorney to manage client’s demat account and bank account so that the client is able to pay funds or deliver shares to its broker on time,” said the circular.
“In some cases, the PoA even allows a broker to open and close accounts on behalf of the client and to trade on client’s account without the consent of the client.”
To address the issue SEBI has standardised the norms applicable at the time of obtaining a PoA and these were made applicable for all new clients on May 31, 2010.