The Securities and Exchange Board of India (SEBI) has recently issued a new circular (SEBI/HO/MIRSD/SECFATF/P/CIR/2024/41) dated May 14, 2024, addressing key updates to the Know Your Client (KYC) validation process under the Risk Management Framework. This circular revises the provisions outlined in the previous circular dated October 12, 2023, aiming to streamline the KYC validation process for intermediaries and facilitate smoother transactions for clients. This article delves into the details of these changes, their implications, and the necessary actions for compliance.
Background and Context
The circular issued by SEBI is part of an ongoing effort to enhance the robustness of the financial system and ensure seamless client transactions. The KYC process is critical in maintaining the integrity and security of financial markets by verifying the identities of clients and preventing fraudulent activities. The updates specified in the circular are based on feedback from stakeholders and aim to simplify and expedite the KYC validation process.
Key Changes in the Circular
1. Modification of Verification Attributes (Para 96)
The circular specifies that KRAs (KYC Registration Agencies) are required to verify the following attributes of client records within two days of receiving the KYC documents:
-
- Permanent Account Number (PAN)
- Name
- Address
This change simplifies the previous requirements, reducing the burden on KRAs and speeding up the verification process.
2. Validation of Records (Para 100)
The new provisions state that client records verified against official databases such as the Income Tax Department database for PAN, Aadhaar XML/Digilocker/M-Aadhaar, and PAN-Aadhaar linkage, as referred to in Rule 114 AAA of the Income Tax Rules, 1962, will be considered as Validated Records. This integration with official databases ensures higher accuracy and authenticity in the KYC process.
Implementation and Compliance
Intermediaries, stock exchanges, and depositories are required to implement the necessary technical changes in their systems by May 31, 2024. Compliance with these changes is crucial for maintaining the validity of client records and ensuring seamless operations within the securities market.
Regulatory Authority
The circular is issued under the authority granted by Section 11(1) of the SEBI Act, 1992, and Regulation 17 of the SEBI KYC (Know Your Client) Registration Agency Regulations, 2011. These regulatory frameworks empower SEBI to enforce rules that protect investors’ interests and promote the orderly development of securities markets.
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Securities and Exchange Board of India
Circular No. SEBI/HO/MIRSD/SECFATF/P/CIR/2024/41 Dated: May 14, 2024
To,
1. All intermediaries registered with SEBI under Section 12 of the Securities and Exchange Board of India Act, 1992
2. Stock Exchanges
3. Association of Mutual Funds in India (AMFI)
4. Association of Portfolio Managers in India (APMI)
5. BSE Administration & Supervision Ltd. (BASL)
Dear Sir/Madam,
Subject: Review of validation of KYC records by KRAs under Risk Management Framework
1. SEBI vide circular SEBI/HO/MIRSD/SECFATF/P/CIR/2023/169 dated Oct 12, 2023 has specified the Risk Management Framework at KRAs wherein the attributes for verification by KRAs have been mentioned. Based on the feedback received from the stakeholders in securities market and for ease of transacting by clients, the provisions of the Master Circular dated October 12, 2023 have been reviewed and it has been decided to simplify the risk management framework.
2. Based on the above, following clauses of the master circular stand modified:
2.1. Para 96 shall read as follows:
As a part of risk management framework, the KRAs shall verify the following attributes of records of all clients within 2 days of receipt of KYC records:
a. Permanent Account Number (PAN)
b. Name
c. Address
2.2. Para 100 shall be read as under:
The records of those clients in respect of which all attributes mentioned in para 96 / 97 above are verified by KRAs with official databases (such as Income Tax Department database on PAN, Aadhaar XML / Digilocker / M-Aadhaar) and PAN-Aadhaar linkage has also been verified as referred to in Rule 114 AAA of the Income Tax Rules, 1962 shall be considered as Validated Records.
3. The Exchanges / Depositories / concerned intermediaries shall complete the necessary technical change in their systems by May 31, 2024.
4. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 and Regulation 17 of the SEBI{KYC (Know Your Client) Registration Agency}Regulations, 2011 to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.
5. This circular is available at sebi.gov.in under the link “Legal — Circulars”.
Yours faithfully,
Sapna Sinha
Deputy General Manager
Phone No. 022-2644 9748
Email id: sapnas@sebi.gov.in
