Sebi issues rules to surrender KRA registration to protect investor records

Sebi on Friday issued a circular to streamline the process for surrendering KYC registration to ensure an orderly winding down of such agencies' operations while safeguarding investors' interests.

In a circular issued on Friday, the Securities and Exchange Board of India (Sebi) said the framework is necessary to deal with voluntary exits by KRAs due to business decisions and involuntary exits triggered by financial distress or regulatory action.

"It is decided that the process for surrender of KRA registration should be streamlined for voluntary/involuntary scenarios so that critical operations and services of KRA are wound down in an orderly manner," the regulator said.

According to the framework, the Know Your Client (KYC) Registration Agencies (KRAs) are required to maintain interoperability and portability of investor KYC records.

Under the new norms, the regulator said KRAs surrendering their registration will be required to transfer all KYC records, including modifications and audit trails, to another Sebi-registered KRA to ensure seamless services for investors without the need for fresh KYC.

The circular mandates that each KRA have a Standard Operating Procedure (SOP) approved by its board to deal with winding down scenarios.

The SOP should lay down the operational modalities for the transfer of records, data, and documents, settlement of contractual obligations, and protection of investor data.

For oversight, KRAs surrendering their registration will be required to constitute an oversight committee to monitor the entire winding-down process, including the transfer of KYC data and seamless investor services continuity under the SOP.

The guidelines also prescribe timelines for the process. Once a KRA board approves surrender, it must intimate Sebi within seven days and communicate the decision to stakeholders within 14 days.

Data migration and system deactivation are to be completed within 60 days, followed by audits and closure within 75 days. A compliance report confirming completion of the transfer has to be submitted to Sebi within 90 days, Sebi said.

During this period, the transferor KRA must extend the investor support desk for a period of 12 months post approval of surrender of its registration by the regulator.

In voluntary exits, KRAs will be required to notify stakeholders, publish public notices and provide sufficient time to intermediaries to shift their integrations, it added.

For involuntary exits due to distress or regulatory action, Sebi retains powers to appoint a temporary administrator, nominate an acquirer KRA, and override prescribed timelines in the interest of investors and market stability, as per the circular.

Sebi emphasised that KRAs must remain fully compliant with the Sebi norms, rules under the Prevention of Money Laundering framework, and other applicable laws during the winding-down process.