SEBI moots rules of know-your-customer agency play

The Securities and Exchange Board of India (SEBI) has asked know your customer, or KYC, registration agencies (KRAs) to ensure interoperability amongst themselves.

The regulator on Friday announced the norms for the establishment of such agencies.

The move is likely to aid the streamlining of the KYC process, set in motion by SEBI’s announcement of a common KYC for all intermediaries. The regulator had earlier said that clients of all intermediaries which come under SEBI need only go through the KYC process once, instead of with each fresh registration as was the case earlier.

The setting up of the nodal agency in the form of the KRA creates institutions for storing this data. The entities will have to gather necessary documents from intermediaries, verify them and store details in physical and electronic form. It would also need electronic connectivity to other KRAs, the SEBI circular said.

The establishment of nodal agencies, along with common KYC, will avoid repetition and duplication associated with multiple registrations, said Rajan Krishnan, chief executive officer at Baroda Pioneer Asset Management Co.  

“It reduces administrative issues and could result in lower administrative cost,” he said.

In order to set up a KRA, the applicant would have to be a wholly owned subsidiary of a recognised stock exchange, depository or self-regulatory organisation. It can also be the subsidiary of any other intermediary registered with SEBI.

The stock market regulator has also said that such agencies, which will hold identification data on clients of SEBI regulated intermediaries, should have a net worth of at least Rs25 crore on a continuous basis.

SEBI would grant applicants initial registration for a period of five years.

The agency would also have to take adequate steps for redressal of grievances of clients within a month of the date of receipt of the complaint and keep the board informed about the number, nature and other particulars of the complaints from such investors.

An intermediary shall not use the KYC data of a client obtained from the KRA for purposes other than it is meant for.
SEBI has also put a curb on any commercial gain by sharing the same with any third party including its affiliates or associates.