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Securities and Exchange Board of India

CIRCULAR No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/41   | Dated:   March 31, 2022

To

All Recognized Stock Exchanges and Clearing Corporations All Depositories
All Mutual Funds
All Asset Management Companies (‘AMCs’)
All Trustee Companies/ Boards of Trustees of Mutual Funds
All Registrar to an Issue and Share Transfer Agents (‘RTAs’)
Association of Mutual Funds in India (‘AMFI’)

Dear Sir / Madam,

Subject: Discontinuation of usage of pool accounts for transactions in the units of Mutual
Funds, Two Factor Authentication (‘2FA’) for redemption and other related requirements:
Extension of timeline

1. Based on discussions with stakeholders and recommendations of the Mutual Fund Advisory Committee, SEBI, vide circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635 dated October 4, 2021 and circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/634 dated October 4, 2021 discontinued intermediate pooling of funds and/or units in Mutual Fund transactions by stock brokers / clearing members on Stock Exchange platforms and by other entities including online platforms, respectively. The provisions of the said Circulars were to come into effect from April 01, 2022. Subsequently, for smooth implementation of the aforesaid circulars, SEBI, vide circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/29 dated March 15, 2022, inter-alia, clarified various modalities of discontinuation of pooling and migration of existing mandates (the aforementioned circulars are collectively referred to as “Circulars”). Various other requirements related to the modalities of discontinuation of pooling, measures to prevent third-party payments and to safeguard the interest of unitholders including 2FA for redemption, were also prescribed in the “Circulars”.

2. SEBI is now in receipt of a representation from AMFI, sent in consultation with various stakeholders, seeking additional time for completion of various activities towards implementation of the “Circulars”. The activity-wise extended timelines sought by various stakeholders have been provided by AMFI (Annexure A).

3. On examination of the representation of AMFI, in the interest of the investors, it has been decided to extend the date of applicability of “Circulars” including the clauses relating to 2FA for redemption and source account verification to July 01, 2022.

SEBI extends timeline for Two Factor Authentication for redemption

4. Also, Clause 2.1.4 of the SEBI circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/29 dated March 15, 2022 stands modified as under:

“On or after July 01, 2022, new mandates shall be accepted only in favour of SEBI recognized Clearing Corporations and those mandates shall exclusively be for subscriptions to units of Mutual Fund schemes and not for any other purpose.”

5. The AMCs, recognised Stock Exchanges, Depositories, recognised Clearing Corporations and Registrar to an Issue and Share Transfer Agents shall take necessary steps for implementing the “Circulars” (along with the clauses relating to 2FA for redemption and source account verification) including the required processes and systems to ensure compliance with the provisions of the “Circulars”. Stock Exchanges/Clearing Corporations and AMCs are also advised to ensure strict adherence to the activity wise timelines given at Annexure –A.

6. Stock Exchanges and Depositories are directed to bring the provisions of this circular to the notice of their members / participants, disseminate the same on their websites and ensure strict adherence to the timelines.

7. All other requirements of the Circulars dated October 4, 2021 and March 15, 2022 shall remain unchanged.

8. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market.

Yours faithfully,

R.Anand

Deputy General Manager
Investment Management Department
Tel: 022 – 26449237
Email: anandr@sebi.gov.in

 

Annexure – A

Timelines given by AMFI in consultation with various stakeholders to implement
discontinuation of pooling of funds and/or units in mutual funds and Two Factor
Authentication

A. Stock Exchange (‘SE’) Platforms:

Parameters Timeline
1.     Discontinuation of Pooling of Funds and Units 1st July 2022
2.    Other processes including Third Party Verification (TPV), Two

Factor Authentication   (2FA),  and verification of key investor
details as applicable to the SE platforms

1st July 2022
3.    Standardizing the    recipients and   contents of information at
various stages of transaction processing
1st July 2022

B. Non SE Platforms:

Parameters / Task Timeline
1.     All intermediate pooling will stop from 1st April 2022
2.     Signing of Agreements with Payment Aggregators (PAs) and Banks 1st May 2022
3.     Verification / validation of email and mobile for new folios / new email IDs and mobile numbers. Validation of the entire existing database of email IDs and / or mobile numbers will be taken up progressively w.e.f. 1st May 2022 1st May 2022
4. Enhanced TPV with independent traceability of source bank account information 1st June 2022
5. 2FA for online redemptions 1st June 2022
6. Standardizing the recipients and contents of information at various stages of transaction processing 1st July 2022

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