Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Stock-market-news/  Sebi’s plan for KYC registration agencies fails to make a mark
BackBack

Sebi’s plan for KYC registration agencies fails to make a mark

A lack of standardized agreements between brokerages and clients has reduced the utility of a KYC registration agency

Two years ago, the Securities and Exchange Board of India had launched know-your-customer, or KYC, registration agencies (KRAs) to create a centralized pool of investor details. Photo: Abhijit Bhatlekar/MintPremium
Two years ago, the Securities and Exchange Board of India had launched know-your-customer, or KYC, registration agencies (KRAs) to create a centralized pool of investor details. Photo: Abhijit Bhatlekar/Mint

Mumbai: A centralized repository of investors’ know-your-customer (KYC) data planned to reduce account-opening documentation has not helped stock brokerages much, many of which insist on specific contracts with their clients which are kept in the physical form.

Two years ago, the Securities and Exchange Board of India (Sebi) had launched KYC registration agencies (KRAs) to create a centralized pool of investor details, which could then be used by brokerages and clients easily. The idea was that investors could get their KYC process done just once and all market intermediaries could access it.

Market participants said KRAs collect the identity and address proofs of investors along with a basic broker-client agreement, but little else. “Life has not changed much. The (KRA) project is very good, but the documentation that you need for the complete KYC and account opening is still offline and so, the utility is limited. Many a time, even the identity and address data could be old," says the compliance head of a large domestic brokerage, asking not to be named as he is discussing the matter with the regulator as well.

The absence of standardized agreements between brokerages and clients has also reduced the utility of KRAs.

In 2011, Sebi allowed certain categories of institutions to set up KRAs, which essentially maintain the KYC details of investors, store the records and provide it to market participants at a nominal charge. The five KRAs currently registered with Sebi are NSDL Database Management Ltd (NDML), a subsidiary of National Securities Depository Ltd; CDSL Ventures Ltd (CVL), a division of Central Depository Services (India) Ltd; DotEx International Ltd, a unit of the National Stock Exchange of India Ltd (NSE); Karvy Data Management Services Ltd and CAMSKRA, set up by Computer Age Management Services (Cams).

While CVL is the largest of the existing KRAs, the five entities between them manage a total of approximately 20 million investor accounts.

Responding to an email query, an NDML spokesperson said that the KRA system is functioning well and the regulations require intermediaries to verify and download the client details from the system.

“We see a large number of KYC records being downloaded by various intermediaries," said the spokesperson, while refusing to share the number of accounts that NDML maintains.

While the agencies exist, brokerage officials say their utility is limited since a lot of the KYC progress continues to be done manually as a number of physical documents still need to be signed by clients. In such a scenario, accessing identity and address records from KRAs does not make sense.

Defending the KRA structure, a Sebi official says that the regulator has abolished most of the client-broker agreements though some brokerages insist on voluntary agreements, which are done offline.

“Voluntary agreements related to power of attorney, running account authorization and Internet trading differ across brokerages and so cannot be replicated within the KRA system. At times, brokerages might make their clients sign on documents to safeguard their own interest in case a matter lands in arbitration. We only recognize the standard rights/obligations contract," says the Sebi official on conditions of anonymity as he is not authorized to speak to media.

KRAs charge 25-75 per client for providing basic data to brokerages. But since many brokerages fear that the information could be old, they prefer to go through the KYC process themselves.

“The KRA is a process in the right direction as a central repository is much needed. But, the documentation process related to account opening is still done outside KRA. So, while getting the agreements signed, one can just get additional 2-3 sheets signed for the ID/address proof instead of using KRAs," says Prasanth Prabhakaran, president of retail broking at IIFL.

An exchange official familiar with the KRA framework adds that the primary issue is that there is hardly any uniformity in the contractual agreements signed between clients and different brokerages.

“The basic KYC has been centralized that includes the identity and address proof along with a basic broker-client agreement. But, it is difficult to replicate documentation related to additional or specialized services offered by brokerages as those might vary across players," said the official on conditions of anonymity as he is not authorized to speak to media.

According to the Sebi official, brokerage offices located in tier-II or tier-III cities, at times, prefer doing the KYC process afresh instead of using the KRAs due to lack of awareness as well.

Mutual fund houses, however, are believed to be benefiting from KRAs as there is uniformity in the documentation procedures in the mutual fund industry.

“There is a standard form for mutual fund investments and so, KRA is a boon if the address of the person has not changed. In broking, KRA has not been able to replicate the vast amount of documents related to disclosures, account authorization, pledging and sub-broker agreements," says the compliance official quoted above.

When KRAs were launched, a one-time exercise was conducted to upload all client information related to identity and address in the system of at least one KRA. Inter-operability between the various KRAs made sure that the data would be available across market participants.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 19 Nov 2014, 12:33 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App