Mumbai: The Securities and Exchange Board of India (Sebi) in a late evening circular issued clarity on the paper less Know Your Client (KYC) or electronic KYC (E-KYC). This clarity would serve as removing the impediments for sale of mutual funds online and through e-commerce platforms.
Sebi has clarified that Aadhaar card can be used as valid document for KYC however, it would be on voluntary basis.
This circular by the regulator is post the Supreme Court order passed in October last year which had directed that the usage of the Aadhaar card as issued by the Unique Identification Authority of India (UIDAI) is voluntary.
“In view of the said orders, the usage of Aadhaar card is optional and purely on a voluntary basis, subject to the final judgment of the Hon’ble Supreme Court in the aforesaid petition,” said Sebi in the circular dated 22 January.
This circular has been issued post the deliberation of the Nandan Nilekani committee which was formed last year to digitize and streamline sale of mutual fund products.
Sebi chairman U.K. Sinha had taken up this project to enable investors to buy mutual fund products online.
“There are millions of potential investors in this country who are buying products online and this buying has gone up in an exponential way. But there is some difficulty for them to buy mutual funds products online. So what can be done to make the process easy? With Reserve Bank of India (RBI) and other entities bringing in payments systems to be online, may be there is some problem with our KYC norms. We are looking at our KYC norms on how to make it simple and easy,” said UK Sinha last year on the sidelines of an event organized by an industry body.
Sinha added “In fact we are looking to ensure that there is no need for any in-person verification or vet signature. So everything should be done over the net. If that is possible, then may be new companies (e-commerce) will come.”
Sebi in the circular also removed the requirement of in-person verification (IPV) for investment upto Rs50,000.
“Sebi by way of this clarification has reduced the regulatory and KYC requirements for small retail investors. Additionally, the clarity on paper less KYC was much desired. Now Aadhaar card can be used as a valid KYC document on a voluntary basis,” said Jimmy Patel, CEO, Quantum Mutual Fund.
However, this circular may not lead to e-commerce companies selling mutual funds immediately as their sale model is yet to clarified.
“It is still not clear whether e-commerce players would act as a distributor or advisor. If they would need to obtain a registration number before they sell mutual fund units. This clarity is needed before Asset Management Companies (AMCs) will approach e-commerce platforms,” said an industry participant on condition of anonymity.