New central KYC rules hit investors, e-KYC process

MUMBAI: A KYC (Know Your Customer) based on PAN or Aadhaar will no more be sufficient if you want to invest in mutual funds, stock and commodities markets.

Apart from the KYC data already provided under Sebi rules, all investors will now have to give mother’s name and proof of permanent address in case their local address or the address for correspondence is not the same as permanent address. Among other details, the new norms also seek disclosure of ‘maiden name’.

The requirement will become mandatory for new investors from August 1. Dates for existing investors have not been announced.

Sebi on Thursday issued the notification for the operationalisation of Central KYC Records Registry, based on a finance ministry Gazette notification of November 2015. The new requirement will also hit Sebi’s e-KYC programme which uses Aadhaar and One-Time Password (OTP) through mobile phones for authentication of individual investors, sources said. The regulator’s plans to start selling mutual funds through e-commerce portals may also get delayed by several months, they added. The operational aspect of Central KYC may also impact the ‘ease of doing business’ campaign, said brokers.

In addition to information from investors, brokers and fund houses will also have to upload the same data with more than one record keeping agency. Soon, PAN or Aadhaar may also cease to be the unique identifier for an investor, as is the norm now under Sebi rules. “A KYC based only on PAN or Aadhaar will not be sufficient anymore,” said the chief of a new-age broking house.

TOI spoke to several top officials from the stock broking and mutual fund industries for their views on the notification. They declined to go on record. They said the execution of the new norm looked flawed although a central KYC agency was mooted to ease the investment process, help speed up financial inclusion and spread the culture of savings and investment. For example, currently PAN is the sole identifier for an investor, but under the new rules there will not be any unique identifier. This may lead to confusion or duplication about an individual’s identity. About a decade ago, the failure of the de-duplication process had led to the IPO scam.

“There is utter confusion,” said the chief of a city-based broking house. “Associations of brokers are trying to get clarity from Sebi, exchanges as well as depositories about the operational aspects of the Central KYC notification.”

Currently, there are multiple KYC Registration Agencies (KRAs) which are inter-linked and are mandated to share investor data among themselves for all investments regulated by Sebi. So neither investors, not brokers or fund houses have to duplicate the KYC process which is based mainly on PAN, while Aadhaar is also used for authentication. Under the new system, this will not work. “It’s a problem of design…it (the new system) creates more problems than solving it,” said another top official from the securities industry. “Rather than putting in place another KYC agency that requires additional information, the approach should have been to set up an agency to coordinate among several industries within the financial system,” the official said.