MUMBAI: Registration of new clients in the domestic equity and commodity markets will likely come to a standstill from August 1, due to confusion among brokers and market intermediaries over the operational aspects of new central KYC agency.
In a circular issued on July 21, the Securities and Exchange Board of India (Sebi) directed market participants including brokers, mutual funds and depositories to report KYC of new clients from August 1, to the Central Registry of Secularization and Asset Reconstruction and Security Interest of India (CERSAI).
The new KYC record keeping agency is jointly promoted by government and PSU banks. CERSAI was created to ensure single KYC for all financial products by the UPA government’s central KYC program.
As per the Sebi circular, all market intermediaries will have to upload KYC record of new clients from August 1 with CERSAI’s online platform compared to earlier practice of passing it to Sebi registered KRA’s. But all intermediaries will have to first register with CERSAI, a process which is yet to be completed.
“There will have challenges in new client registration for a few weeks,” said S K Rustagi, President, ANMI, a brokers association. “We have represented to the government on additional requirements in the new central KYC and even operational issues. We are hopeful of a quick resolution of the matter.” Brokers say CERSAI itself does not seem to be geared up. A head of a Mumbai based brokerage said CERSAI help desk had informed that over 1500 registration applications of market intermediaries were pending but most were pending. New client registration can begin only after market intermediaries get their login with CERSAI. Also, all the key financial institutions including banks and insurance companies are required to pass on their KYC data to CERSAI, which has not been done. Currently, there are multiple KYC registration agencies that are interlinked and share investor data. CERSAI has appointed DotEx International as its only managed service provider.
“We have been working breathlessly for the past few days to adopt to the new system,” said Alok Churiwala, vice-chairman, BSE Brokers Forum. “Already, it is difficult to attract investors to markets and if systemic issues create hurdles, life becomes difficult.”
Investors will be further hit by the fact that KYC based on PAN and Aadhaar will no longer be sufficient for investing in stocks and mutual funds. Among other details, the new norms seek disclosure of maiden name, mothers name and proof permanent address in case local or correspondence address is not the same. The new rules will hit Sebi’s e-KYC that used Aadhaar and one time password through mobile phones for investor authentication.
Brokers say they had requested Sebi to give more time for registration. But the regulator asked to follow the new process in just 10 days notice. CERSAI will follow KYC norms under the Prevention of Money Laundering Act, which prescribes strict risk profiling of clients based on income and bank balance. Rules for corporate investors are yet to be specified under central KYC.