Sebi’s new move will lower costs for customers and make shifting brokers easier.
Unhappy with your broker, yet don't want to go through the 100-signature ordeal to just open another trading account? Things could be simpler, quite soon, even in terms of costs.
The Securities and Exchange Board of India (Sebi) has asked capital market participants to set up know-your-customer (KYC) registration agencies or KRAs, whose function will be to do the due-diligence on the customer. When a customer shifts from one intermediary to another, the latter could then verify and download the client's details from the existing KRA. Of course, it may want to do the KYC on its own, but it would have an option.
| SEBI MAKES INVESTING MUCH SIMPLER |
| * Single KYC can be used across instruments |
| * No additional costs for shifting brokers (optional) |
| * More competition between intermediaries |
| * Brokerage cost could come down |
| * Reduction in time from 10 days to one or two |
This move should bring down costs for customers — if they are unhappy with one broker, they can easily move to another, without significant cost. At present, brokers charge between Rs 500-1,000 for the KYC. "The move is also expected to reduce the overhead costs for brokerages that have to maintain back-office staff for carrying out KYC requirements", says Satish Menon, director (operations), Geojit BNP Paribas Financial Services.
Sebi has set strict guidelines for KRAs. They would not be allowed to share the KYC data obtained from clients for other commercial purposes. So, all the sensitive data about one's finances could come down as well. This single-window KYC registration will extend to all institutions that come under Sebi's purview, like stock exchanges, depositories, mutual funds and so on.
Once a KRA is in place, multiple-level KYC formalities will not be needed. While the client will need to do a single-point registration, the onus of updating client information will be with the KRAs. Other transactional details will be updated by the intermediaries, who could use the existing KYC database of any individual.
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This should benefit those living in smaller towns, where sending the required documents across to the brokers through couriers is time-consuming. At the moment, the KYC procedure takes up to 10 days to get completed. Once the KRAs come in, the procedure could be completed in a day. Any client grievances would have to be resolved within a month of receipt of the complaint by the KRA.
At present, investors need to give a list of mandatory and non-mandatory documents. The former include proof of address and identification, broker-client registration and so on.
The others include the power of attorney certificate, additional address proof and so on. Though the list of documents one needs to give remains the same, these would only need to be sent once. "Though intermediaries might still have to submit your latest depository (DP) statements and maybe even some kind of address proof," says Prashanth Prabhakaran, president, retail broking, India Infoline.
Another fallout of a single KYC window would be intensifying of competition within the broking fraternity. With uniform KYC norms, competition among brokers is likely to go up, as investors will not think twice before shifting from one broker to another. This could bring down broking fees.
The intermediary shall perform the initial KYC/due diligence of the client, shall upload the KYC information on the system of the KRA and send the original KYC documents to the KRA from the date of account opening or within the time as prescribed by the board from time to time.
In the case of mutual funds, a registrar transfer agent may also undertake the KYC and send the original documents to the mutual fund or KRA.
