Market intermediaries, who are constantly on the lookout for avenues to reduce overhead and compliance costs, have found a new tool. The Unique Identification number or UID can be used to cut down processes and costs involved in completing the Know Your Customer (KYC) formalities, they say.
A suggestion to this effect has already been made to the Securities and Exchange Board of India (Sebi) through brokerage representative bodies. It is believed the suggestion also has the backing of other market participants, including depositories and stock exchanges.
UID or Aadhaar is a 12-digit unique number that will be allotted to Indian residents. It will eliminate all possibilities of a duplicate number as it will be linked to the individual’s biometrics. Currently, PAN (Permanent Account Number) serves as the identification number in stock market transactions.
Market players are of the view that since the UID process involves basic due diligence while registering the applicant’s details, including identity and address proof, some of the overlapping requirements in the KYC norms can be done away with.
Currently, brokers have to get details such as name, father’s name and date of birth from the individual apart from the prescribed documents for address and identity proof. They also have to conduct in-person verification as part of the KYC norms.
“The regulator has for long been talking about revisiting the KYC norms and the UID could just be the right platform,” said a person privy to the development.
“The suggestions have been made, though it would be a too early to decide on anything as UID allotments are still on,” he added.
This is, however, not the first time that the capital market regulator will evaluate the practical implementation of UID in the securities market. In December last year, Nandan Nilekani, who is heading the UID project, along with other officials had met the entire Sebi brass, including then chairman C B Bhave, and made a presentation on how UID could be incorporated in all market transactions.
Another person who was part of the deliberations said there was a view among market players that overlapping features of the KYC process could be done away with. “The broker can validate the information provided by the client from the UID database,” he said.
As the government has clarified that the UID numbers will be stored in a central database, market players feel it will help the regulator, too, in tracing the audit trails of transactions they find suspicious.
The government, incidentally, has already notified the Aadhaar number can be used as the “officially valid document” to satisfy the KYC norms for opening small bank accounts.
