Poor coordination among agencies hits KYC process: MFs

MFs unhappy over Sebi asking them to tie-up with all KRAs

The capital markets regulator has asked the country's asset management companies to have tie-up with all existing know your customer (KYC) registration agencies (KRAs) —a step fund houses are not happy with. They say better inter-connectivity among the current five KRAs would have rather helped resolve the difficulties the industry is currently facing.

That five KRAs came into being within a few months of the Securities and Exchange Board of India’s (Sebi) declaration on the same may have enthused the markets regulator, but in realty, India's mutual fund houses may find it uneasy to deal with the situation.

“There is no coordination among the five KRAs which is making the KYC processes a messy affair,” says the chief executive of a mid-sized fund house. He adds all these agencies have different structures — some have old data and some have just a mere ‘Yes’ or ‘No’ as KYC status.

Another chief executive confirmed that Sebi wanted asset management companies (AMCs) to have separate links with all KRAs. “But how practical is this? This way the process will only become cumbersome,” he explains.

According to industry sources, under the current situation, chances of multiple KYC cannot be ruled out. For instance, if an investor has a folio with ‘A’ fund house and that house has ‘X’ as its KRA, and if the same investor comes to invest with ‘B’ fund house which has ‘Y’ as its KRA, lack of inter-connectivity between X and Y is leading investors to apply for yet another KYC which is tedious, they say.

"Is it something which you call simplification? Certainly not. In the worst case scenario, even if an investor has genuine KYC, it is not necessary that the concerned KRA will push the data to me," explains the second executive quoted above.

Though they agree that Sebi's intention is clearly a good one, poor implementation is making things worse. "The inter-connectivity among KRAs, which is supposed to happen, is somehow lacking which is not good for market intermediaries. Currently, if an investor comes to me and other AMC, both of us (AMCs) are required to send data to KRAs and that way the KRAs are making money from both ends while there is a single investor," says an industry source.

For investors, too, it is creating problems. "They feel if their KYC is done with one AMC, there is no need to do it again with another, which is true. But currently, the ground reality is not that smooth," says another sector official.

Earlier, Sebi had said there would be inter-operability between KRAs, and the client will not face any extra difficulty. The KRAs which are currently in operations are CDSL Ventures, NSDL Database Management, DotEx International, CAMS Investor Services and Karvy Data Management Services.