Smoother KYC norms and single demat make life easier
Union Budget proposed introduction of uniform KYC norms and inter-usability of KYC records across the entire financial sector
In a bid to make capital market access smoother for investors, Budget 2014 proposed introduction of uniform Know Your Customer (KYC) norms and inter-usability of KYC records across the entire financial sector. The move is a welcome one for the individual investor who deals with multiple service providers such as banks, insurance companies and mutual funds.
The capital markets regulator, Securities and Exchange Board of India (Sebi), in 2011, issued a regulation which enabled uniform usage of KYC by all Sebi registered intermediaries. However, this meant that for your insurance and banking needs, KYC would still have to be done separately. Now, with the current provision, life becomes simpler.
B. Gopkumar, executive vice president and head of broking, Kotak Securities Ltd, said, “Today, you have to deal with different regulators for KYCs, and this should change. It is also a good move for financial inclusion as it makes it easier to reach more people.”
According to a senior executive with a capital market service provider directly linked to the development, “The announcement has two connotations; the wording speaks of uniform norms, which means that everybody seeking KYC has to ask for similar information from the investor. Secondly, it means that the supporting documents need to be similar as well.”
At present, there are five know your client registration agencies (KRAs) licensed by Sebi to undertake the KYC processing. A director with a large domestic financial services company said, “The intention to have a uniform KYC was also mentioned by the former finance minister in February. As of now, there are no details on the process and the uniform KYC form. While implementation requires clarity, there shouldn’t be any issues in the process itself.”
For the investor, it spells good news, as you won’t have to produce a variety of different documents in dealing with different financial service providers. At the moment, you have to deal with different requirements depending on whether you are opening a bank account, buying insurance or investing in a fund; this move will reduce the confusion of filling up a variety of different forms and attaching different kinds of documents.
Another key proposal that the budget had for consolidation of transactions in the financial asset market, is the implementation of a single demat account. As things stand now, if you buy stocks, insurance and commodity (non-delivery) contracts, the demat accounts are separate. If the budget proposal is implemented, then you will have one demat account where all your financial securities are held. This, for sure, makes life more convenient for many investors.
Business participants, however, say that this is likely to get implemented in stages. The first step is likely to be that equity and insurance will get merged. The next step would be to include pension accounts, bonds and corporate deposits, and lastly to include banking instruments.
Commenting on the finer details of implementation, the senior executive quoted earlier, said, “The implementation will require a lot of technological changes and resources, but the process is manageable. Small issues such as asset specific nomination, multiple holding accounts, and others, will have to be seen at the implementation stage.”
“It’s a great concept and a structural change in the way we manage financial assets,” said Gopkumar.
Implementation and execution is key. There are many details to considered. For one, at the moment the number of insurance policies that are held by individuals score above the number of individual demat accounts which exist. We will have to wait for the details to understand if all the existing policy holders need to get a new demat account opened. Or, if an existing policy holder already has a demat account, then how does she link her insurance to that account?
Apart from this, the individual regulators across the financial services spectrum will have to find a way to merge the services and make the transformation a smooth one.
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