In a move that could simplify the customer identification process in commodity and equity markets, the Forward Markets Commission (FMC) has proposed to join with the Securities and Exchange Board of India (Sebi) for common Know Your Customer (KYC) norms.
Once formalised, investors wanting to participate in equities, mutual funds and commodity futures will need to get only one KYC done, which will be acceptable to all intermediaries and both regulators.
“We met Sebi Chairman U K Sinha last week and discussed a host of issues, where both regulators can work jointly. For example, we discussed the possibility of a common KYC in the two markets, where almost 99 per cent of participants are common,” said Ramesh Abhishek, chairman of FMC that regulates the commodity market.
“The Sebi chairman, in principle, agreed to the common KYC proposal,” he added.
Currently, trading in the two different classes (equity and commodity) of financial markets requires separate KYCs. The job is not only tedious, but also cumbersome, while clients also need to provide the same details each time they wish to take a membership.
FMC is ready to use Sebi’s KYC Registration Agency (KRA). But, the agency should give its periodical report to FMC in addition to its existing reportage to Sebi, the capital market regulator. In principal, the Sebi chairman also agreed to the KRA’s mandatory reporting to FMC, Abhishek said.
For Sebi and FMC to use the same KRA platform, the KYC documentation needs to be common, which currently differs, with some additional documents required by FMC.
KRA is an entity that centrally maintains KYC records of investors on behalf of intermediaries, including brokers, asset management companies (AMCs — in case of mutual funds) and depositories. At present, there are four KRA agencies registered with Sebi.
CDSL Ventures, a subsidiary of BSE-promoted Central Depository Services, is currently the market leader in this segment. The three other agencies are NDML, fully owned by NSDL; DotEx, a 100 per cent subsidiary of the National Stock Exchange; and CAMS KRA, an arm of CAMS Investor Services.
Under the new KRA system, clients of all Sebi-regulated entities, including AMCs, portfolio management schemes (PMS) and equity brokers, have common KYC. Meanwhile, Sebi has initiated a plan to move all existing client records to the KRA system. By March 2013, KYC information of all active clients will be moved to the new KRA system.
The new KRA system benefits investors as they switch brokers or mutual funds without undergoing the KYC process repeatedly. Intermedi-aries also benefit as their storage and back office costs fall as clients’ KYC documents get stored centrally with the KRA.
The Prevention of Money Laundering Act (PMLA) norms say, the broker or depository participant has to store the documents for 10 years after he ceases to be a client. As a result, the intermediaries are not required to maintain these documents as these are stored with the KRA.