Centralised reporting makes claiming shares after investor's death easier

Procedure applies only to Sebi-regulated investments, not to bank accounts, insurance policies, other assets

The Securities and Exchange Board of India (Sebi) has implemented a centralised procedure for reporting and verifying an investor’s death, aiming to ease the transmission of securities to legal heirs.

“The existing claim procedure involves separate, paper-intensive formalities with each financial institution,” says Bharat Chugh, a Supreme Court advocate and a former judge.

The task becomes complex if claims need to be made from multiple fund houses. “With unclaimed money in Indian financial assets surpassing thousands of crore, Sebi’s centralised mechanism promises a more efficient and compassionate approach to handling the aftermath of an investor’s demise,” says Chugh.

The procedure

According to Sebi’s circular, upon an investor’s demise, it is imperative that the intermediary be notified by either a joint account holder, nominee, legal representative, or family member (they are called notifiers).

Verification of death: The first step is validation of the death certificate by the intermediary. “Verification must be completed by the next working day after receipt of the certificate,” says Manini Roy, senior associate at TAS Law. Verification can be done either online or offline through the ‘Original seen and verified’ (OSV) process.

If a death certificate cannot be verified, the intermediary will flag the investor’s Know Your Customer (KYC) status as “on hold” and then request another death certificate from the parties concerned.

KYC update: Next, the KYC record is updated. “After verifying the death certificate, the intermediary submits a ‘KYC modification request’ to the KYC Registration Agency (KRA). Consequently, all debit transactions in the deceased investor’s account are blocked,” says Ravi Prakash, associate partner, Corporate Professionals.

Says Shiju PV, partner at IndiaLaw LLP: “Upon receiving the ‘blocked permanently’ notification, all transactions are blocked by the intermediaries. They inform the notifier or the nominee within five days about the transmission procedure and the documents required for this purpose.”

“The blocking of the deceased’s accounts will prevent fraudulent transactions. Such accounts will be made operational once the nominee or family member submits the relevant documents to the intermediaries,” says Suresh Surana, founder, RSM India.

False death intimation: If information about death proves incorrect, the investor concerned will be informed. The intermediary must then conduct additional due diligence, including a video call or in-person verification, to prevent fraudulent transactions. “If upon verification it is found that the information regarding death is false, the intermediary will provide a KYC modification request on the same day to avoid inconvenience to the investor,” says Shiju PV.

Benefits, downsides

Sebi’s initiative is expected to help bereaved families. “The biggest advantage is that once an investor’s demise is validated through the new mechanism, the information will get updated across all fund houses,” says Aashwyn Singh, associate, SKV Law Offices. It will eliminate the need to inform each intermediary individually.

The new procedure has a pitfall. “No alternative remedy is prescribed for conflict (between heirs) after the account is permanently blocked by Sebi,” says Sonal Alagh, partner, Alagh and Kapoor Law Offices.

Joint assets and folios on hold

Joint accounts shall continue to operate according to norms set. “Joint accounts are generally operated on an ‘either or survivor’ basis. There will be no deviation from the instructions due to the introduction of this process,” says Diviay Chadha, partner, Singhania & Co.

In the case of folios that are on hold, the intermediary may allow transactions in them after additional due diligence (video call or in-person verification) which establishes that the investor is alive.

Update nominations

Keeping nominations on all assets updated is crucial. “Ensure that joint holdings are clearly defined to avoid any inconvenience caused by holdings being blocked (after the demise of one of the joint holders),” says Chugh.

This arrangement of blocking accounts after demise applies only to Sebi-regulated entities. “Bank accounts, insurance policies, and other assets will still need to be tracked separately,” says Surana.

To avoid potential disputes, Alagh says both notifiers and intermediaries should maintain proper records of all communications and document exchanges.

The new process starts on January 1, 2024, so investors have time to ensure that their KYC documents and nominations are updated.

Tips for nominees, heirs

Notifiers should promptly report the investor’s death to the concerned intermediary to ensure that assets are correctly transmitted to the legal heirs or nominees

Make sure all documents, especially the death certificate and PAN, are authentic. Falsifying or presenting counterfeit documents can have legal consequences

While this centralised procedure facilitates the transmission of assets posthumously, investors must nonetheless have a nominee(s) for their investments to further simplify the transmission process

In the absence of a nominee or if there’s a dispute regarding the legal heir, seek legal help

Source: Alagh and Kapoor Law Offices