SEBI mulls standardizing KYC and folio opening norms for MFs
Observes operational lapses wherein investors were unable to transact or redeem their funds
The Securities and Exchange Board of India (SEBI) has proposed a uniform procedure for opening new mutual fund (MF) folios and executing the first investment.
The move is aimed at addressing the issues faced by investors and fund houses due to incomplete know your client (KYC) verification.
Under the proposed rules, MF investors can make transactions only after their KYC verification is completed and confirmed by the KYC Registration Agency (KRA).
The market regulator stated that the purpose of introducing the procedure was to ensure their investment accounts (folios) were ‘compliant’ in the agency’s records. It would eliminate errors and discrepancies that occur under the current system, where asset management companies (AMCs) sometimes open folios before the KRA’s final review is done.
Currently, AMCs perform their own internal KYC checks and allow investors to proceed with transactions, even as the investor documents are sent to the KRA for finality.
Thus, if the KRA later finds any discrepancy or deficiency, the investor’s folio is flagged as non-compliant, often resulting in significant delays and transaction blockages.
SEBI observed that operational lapses created substantial difficulties, and investors faced the frustration of being unable to transact or redeem their investments.
On the other hand, fund houses encounter hurdles when trying to communicate with unitholders or when attempting to credit redemption proceeds and dividends due to incorrect or incomplete information. Such operational issues have also given rise to unclaimed investor funds.