Sebi mulls revamping nominations framework to reduce unclaimed assets

Capital markets regulator Sebi on Friday proposed revamping the nominations framework in a bid to reduce unclaimed assets in the securities market as well as smoothen the process for claiming the assets by surviving successors of the deceased investors.

In its consultation paper, the regulator proposed revisions to nomination facilities for securities such as shares, bonds, units of REITs (Real Estate Investment Trusts), InvITs (Infrastructure Investment Trusts), AIFs (Alternative Investment Funds) and other securities held in dematerialized form and for units of mutual fund schemes that are expressed in a statement of account.

This will address the objective of providing convenience to investors and uniformity in the procedures to institutions.

Such revamped nomination facilities will operate without affecting the prevalent systems of law governing transmission and succession -- rule of survivorship in case of joint holdings, when a person has died leaving a Will; and when a person has died without leaving a Will.

The Securities and Exchange Board of India (Sebi) has sought comments till March 8 from the public.

Sebi noted that the primary factors contributing to the increase in unclaimed assets are incomplete nominations or unavailability of nominations for financial assets in the securities markets.

This led to impacts on the consequent transmission process of the deceased making transmission an ordeal for the family or successors of the deceased.

The regulator has suggested that nominations should be made, changed or cancelled in a safe, secure, verifiable manner by using digital signature or Aadhaar-based eSign or physical signatures of the investors or through dual authentication.

If nomination is done by affixing a thumb impression, the same should be in presence of two independent witnesses. This serves to address non-repudiation risk and aid verifiability.

Further, nomination facilities will permit multiple nominees and be increased from current limit of only three to two-digit or three-digit (i.e 99 or 999), which are large and sufficiently high to address ordinary requirements of individual investors.

Nomination facilities can be made, changed or cancelled at any time without any restrictions as to the number of times such facilities is utilized, Sebi suggested.

In case of joint holdings and rule of survivorship being applicable, no documentation related to KYC, or undertakings should be required from the surviving joint holders.

In absence of nominations, the legal heirs should be required to produce due evidence and follow the procedures prescribed (under applicable law) for the purpose of effecting transmission in their favour.

In order to give effect to the proposals, depositories and asset management companies managing mutual funds (and their registrars) should update their systems for the nomination facilities.

The regulator said that these institutions should make a provision of e-nomination facilities --authentication digital signature certificate, Aadhaar based e-sign and dual factor authentication.

As transaction is allowed through such authentication, the same should be allowed for e-nomination also.

In MF, online transactions are not allowed for joint accounts and accordingly to allow e-nomination, online transactions should be allowed in joint accounts also adopting the same mode of bank accounts.

Also, these institutions should maintain due records of nominations made, changed or cancelled for the period prescribed.