Inadequate KYC: Sebi sets rules for Automatic deactivation of trading and demat accounts
Every address recorded for the purpose of compliance with KYC procedure has to be accurate. An intermediary has to update the address from time to time. However, it has been observed that in some cases accurate/updated addresses of clients are not maintained.
To ensure that the client furnishes accurate/updated details of address and to ensure that KYC details are correct, the following framework involving stock exchanges (except Commodity Derivatives Exchanges) and depositories (hereinafter collectively referred to as “the MIIs”) is proposed:
- The MIIs shall forward the signed acknowledgement of its receipt by the concerned addressee or its authorized representative to SEBI within a period of 30 working days from the date of receipt of such instructions from SEBI.
- If MII does not receive any notice receipt from the person to whom the notice is to be received within 30 days, then all demat accounts of that person will be closed within 5 days thereafter. Note that the receipt must be signed by the recipient or any person authorized by him.
Complete information to be given to the concerned unit/person
According to SEBI, the MII must inform both that organisation and the intermediary for the party in question that their demat account is being cancelled. In addition, they must explain why this is happening. After the account has been closed, the involved entity may request to have it reopened with the aid of a middleman. This time, they must provide accurate address details.
The framework would also apply to joint accounts. However, before de-activating the joint accounts, MIIs shall endeavor to contact the entity through the co-holders for delivery of SCN / order simultaneously by following the same process outlined above.
This Circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.