The Securities and Exchange Board of India (Sebi) has issued detailed rules on its new idea of Know-Your-Customer Registration Agencies (KRAs).
The new rules, effective January 1, apply to intermediaries such as stock brokers, depository participants, mutual funds, portfolio managers, venture capital funds and collective investment schemes.
As already reported, to avoid replication of the KYC (know-your-customer) process with every intermediary, a mechanism for centralisation of KYC records in the securities market is to be developed. An intermediary shall perform the initial KYC of its clients and upload the details on the system of the KRA. When the client approaches another intermediary, the latter can verify and download the client’s details from the system of the KRA. Once the client has done a KYC with a Sebi-registered intermediary, he need not undergo the same process with another.
Wholly-owned subsidiaries of depositories, other market intermediaries and Self Regulatory Organisations would be able to secure a certificate for initial registration as a KRA.
In on Friday’s circular, Sebi has told market intermediaries to upload all their initial KYC information with their KRA within 10 working days of the client supplying it. The capital markets’ regulator has also made in-person verification of clients mandatory for intermediaries.
As a result, Sebi has said, maintaining electronic records of KYCs of clients and keeping their physical records would not be necessary for intermediaries. As an interim measure, for all account openings between January 1 and January 31, intermediaries are given time till February 15 to upload the relevant documents with the KRA. Thereafter, the 10-day requirement is to apply.
In the case of existing clients, Sebi said the KYC may be uploaded if in conformity with the details sought in the now-uniform KYC. In doing so, they must ensure against any duplication of data in the KRA system.
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Sebi also made it mandatory for intermediaries to promptly provide the KYC-related information to a KRA when required. It has told them to have adequate internal controls to ensure security and authenticity of the data.
KRAs are to have a comprehensive audit of their systems, controls, procedures, safeguards and security of information and documents, to be annually done by an independent entity. The audit report and steps taken to rectify deficiencies are to be placed before its board of directors. Thereafter, the KRA would be required to send the action-taken report to Sebi within three months.
As soon as the initial KYC is done, a client can start trading while the remaining process of the KRA is in process.