Deadline for India’s KYC Registration Agencies to Validate KYC Records Extended Till Nov. 2022
SEBI (Securities and Exchange Board of India) has once again extended the deadline for commencing the validation of all KYC records by KYC Registration Agencies (KRAs) till November 1, 2022. Earlier, such process was set to begin from August 1 onwards. As per the new norms notified by SEBI (KRA) Regulations (Amendment), 2022, KRAs will have to maintain an audit trail of the upload/modification/download with respect to KYC records of clients.
Indian capital markets regulator SEBI (Securities and Exchange Board of India) has extended the deadline for commencing the validation of all KYC (Know Your Customer) records by KYC Registration Agencies (KRAs) till November 1, 2022. This deadline was earlier set for July 1, 2022, which has since been extended twice to August and now November.
This move comes after SEBI, in January 2022, amended the SEBI (KRA) Regulations, 2011 to make KRAs responsible for carrying out independent validation of the KYC records uploaded onto their system by Registered Intermediaries (RIs). Under the new notified rules, KRAs will have to maintain an audit trail of the upload/modification/download with respect to KYC records of clients. Additionally, on April 6, 2022, SEBI issued additional guidelines for implementation of these new norms.
What is a KRA?
KRA is a company incorporated and registered under the Companies Act, 2013 and which has been granted a certificate of registration under SEBI (KRA) Regulations, 2011 and shall be deemed to be an intermediary in terms of the provisions of the Act.
KYC refers to the procedure specified by the Board for identifying and verifying customer details like address proof, identity proof, as well as compliance with rules, regulations, guidelines, and circulars issued by the Board or any other authority for the prevention of money laundering.
What is the registration process for KRAs?
An application for the grant of a certificate of registration as a KRA shall be made to the Board in Form as specified in Schedule I and shall be accompanied by such fees and in such manner as specified in Schedule II of SEBI (KRA) Regulations, 2011.
It is a mandatory requirement that the application must not include any misleading or false information, else it will be rejected. However, the regulations provide an opportunity to the agencies to contest such rejection and before rejecting any application, board is required to provide 30-day time period to remove any objections.
Grant of certificate of registration as KRAs
For purpose of grant of certificate of registration, the Board shall not consider an application, unless the applicant is a fit and proper person to the satisfaction of the Board and belongs to one of the following categories, namely:
- Wholly owned subsidiary of a recognized stock exchange, having nation-wide network of trading terminals
- Wholly owned subsidiary of a depository or any other intermediary registered with the Board
- Wholly owned subsidiary of a Self-Regulatory Organization (SRO) registered under SEBI (Self-Regulatory Organization) Regulations, 2004
For determining whether an applicant is a fit and proper person, the Board will consider the criteria specified in Schedule II of Intermediaries Regulations.
Additionally, the applicant must have a net worth of at least INR 250 million on a continuous basis.
Once the Board deems the applicant eligible, it is required to send intimation about it to the applicant, for the grant of certificate of registration, and grant a certificate in the Form. However, this grant is subject of payment of fees.
If the KRA proposes change in control, it shall obtain prior approval of the Board for continuing to act as such after the change.
What are the guidelines issued for implementation of these new norms?
The guidelines, as issued in April 2022, prescribe the following:
- KRAs must continue to act as repository of KYC data in the securities market and shall be responsible for storing, safeguarding, and retrieving the KYC documents and submit to the Board or any other statutory authority as and when required.
- KRAs must independently validate records of those clients (existing as well as new) whose KYC has been completed using Aadhaar as an OVD (officially valid document). The records of those clients who have completed KYC using non-Aadhaar OVD shall be validated only upon receiving the Aadhaar Number.
- During the process of validation, KRAs shall validate the following details:
- Aadhaar through Unique Identification Authority of India (UIDAI) authentication or verification mechanism
- Mobile number and e-mail ID using OTP validation (only in cases where mobile number and e-mail ID provided by client are not seeded with Aadhaar)
- PAN using the income tax database
- KRAs must develop systems or mechanism, in consultation with SEBI and in co-ordination with each other, and it must follow uniform internal guidelines detailing aspects of identification of KYC attributes and procedures for KYC validation.
- The systems of RIs and the KRAs must be integrated to facilitate seamless movement of KYC documents to and from the RIs to the KRAs.
- KRAs must speedily inform the respective RIs of inadequacy in client’s KYC documents, if any, that is observed for validation.
- On successful completion of KYC validation, a unique client identifier called KRA identifier shall be assigned by KRA to the client and such KRA identifier may be used by the client for opening of account with any other intermediary, without repeating the KYC process.
- The KYC records of new clients (who have used Aadhaar as an OVD) shall be validated within two days of receipt of KYC records by KRAs.
- KYC records of all existing clients (who have used Aadhaar as an OVD) shall be validated within a period of 180 days from November 1, 2022.
- KRA shall intimate the KRA identifier to the client within two working days of receipt of KYC records by the KRAs by post or email and maintain the proof of dispatch.
- Clients whose KYC records are not found to be valid by KRA after the validation process will be allowed to transact in securities market only after their KYC is validated.
- In case of KYC based on non-Aadhaar OVD, the KRA shall only store such records and the same would not be validated by KRAs unless Aadhaar number is provided by the client.
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