AMFI knocks on SEBI doors to resolve KYC impasse

The Association of Mutual Funds in India (AMFI) has held multiple rounds of discussions with the Securities and Exchange Board of India (SEBI) to clear the logjam arising out of the validation of investor KYC records. This is in addition to separate talks held by individual fund houses and distributors with the regulator on the issue.

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In its circular dated August 11, 2023, SEBI had asked KYC Registration Agencies (KRAs) to validate different KYC attributes, including PAN-Aadhaar linkage, name, address, mobile number and email ID. Accordingly, from April 1, the KYC status of all investors have been changed as KYC validated, KYC registered or KYC on hold. KYC-registered investors can continue with existing investments but cannot start fresh investments from a different asset manager. KYC-on-hold investors are not allowed to do any transactions, be it systematic investment plans or redemptions.

SEBI is believed to have asked KRAs to collate data on the number of valid and invalid KYC investors and iron out the chinks in the online KYC updation process.

“There will be a lot more efforts made to help investors with a registered status to move to the validated status in a convenient way. SEBI wants the option to modify KYC status to be made available across registrars & transfer agents, KRAs, and asset managers,” said an industry official.

An email sent to SEBI and AMFI did not get a response.

Flow Disruptions

The current impasse is likely to impact flows in April, especially from non-resident Indians and those living in the hinterland with limited access to the internet or mutual fund points of sale.

For NRIs, KYC modification can only be done via physical mode, which could be cumbersome as most NRIs do not reside in the country. Resident investors wanting to update their KYC status through the online route are running into a number of hurdles, such as KRA database errors, Aadhaar not being legible for an online Aadhaar KYC, KYC with different KRA, OTP not being generated on time, and online KYC modification completed but no change in KYC status.

Besides, investors are not being intimated by AMCs that their KYCs have been put on hold. This is leading to a situation where SIP money is being debited and later refunded to the source account without unit allotment or redemption requests being rejected.

“The Aadhaar today is the first step in safeguarding yourself from an identification and verification process from the authorities. It is in the selfish interest of investors that they move to the Aadhaar-based KYC process. While one can debate on this being cumbersome, it is your money, and you need to safeguard it. In this new digital world where one is prone to new areas of fraud, it is important to put in place your personal verification and identity,” Swarup Mohanty, CEO, Mirae Asset Mutual Fund, said in a post on platform X.

Amol Joshi, a distributor, said that new KYC rules should be implemented at a later date once KRAs are ready with a common online solution for all investors in one URL. Another distributor feels there needs to be a carve-out given to senior citizens wanting to redeem their money.