Sebi on Thursday proposed to standardise the process for opening mutual fund folios and executing the first investment, aiming to ensure these folios are created only after verification.
The proposal seeks to address issues arising from cases where folios are opened before the completion of Know Your Client (KYC) verification by KYC Registration Agencies (KRAs).
Currently, Sebi mandates that new folios be opened only after mandatory KYC verification; certain instances of KYC non-compliant folios have surfaced due to the sequential process followed in the mutual fund industry.
Sebi said the Asset Management Companies (AMCs) conduct their own internal KYC checks before forwarding documents to KRAs for final verification. If the KRA later identifies discrepancies during the review, the folio is marked as non-compliant until the issue is resolved.
This has led to operational problems for both investors and fund houses.
Investors, in some cases, are unable to execute transactions under new folios or receive redemption proceeds and dividends when their KYC details are incomplete or incorrect. AMCs, on their part, face difficulties in communicating vital scheme information or crediting redemption amounts and dividends, which in turn leads to an increase in unclaimed investor amounts, it added.
To address these issues, Sebi has proposed that AMCs create folios only after receiving and verifying account opening documents as per the Know Your Client (KYC) norms.
The KYC documents will then be sent to KRAs for final verification, and the first investment will be permitted only after the KRA marks the folio as KYC compliant in its system, it said.
Further, investors will be informed at every stage of the KYC process through registered email and mobile numbers. AMCs and KRAs have been directed to align their systems and workflows with these proposed norms.
The regulator said the move aims to ensure compliance with KYC requirements before any investment is processed.
The Securities and Exchange Board of India (Sebi) has sought comments on the proposals from the public stakeholders by November 14.
