In financial markets, compliance requirements evolve to ensure transparency, security, and regulatory adherence. One such recent regulatory requirement in India pertains to the revalidation of Know Your Customer (KYC) for investors in mutual funds.

The Securities and Exchange Board of India (SEBI), in October 2023, mandated KYC Registration Agency (KRAs) such as CVL KRA to verify the records of all existing clients whose KYC has been completed based on officially valid documents (OVDs) other than Aadhaar. In this context, understanding the need for re-KYC, the procedural aspects, and the consequence of non-compliance is crucial for investors.

What is it about

KYC plays a pivotal role in authenticating investors’ identities and safeguarding the integrity of financial transactions. Originally, KYC procedures involved submitting various documents such as bank statements and utility bills. However, SEBI updated the accepted documents for Proof of Identity ( termed as OVDs), to include Aadhaar, passport, driving licence, voter ID card, job card, or any other document specified by the Central government in consultation with the regulator.

For investors to meet the new requirements with regard to the OVDs, initially, SEBI had set a deadline of December 31, 2023, to update existing KYC records on the systems of the KRAs (KYC Registration Agencies). However, it extended the deadline by three months to March 31, 2024. With the deadline having passed, non-compliance could result in suspension of lump sum and SIP investments for mutual fund investors whose KYC needs to be revalidated.

According to Mario Sylvester Roche, Chief Operating Officer - Domestic Fund Services, KFintech, mutual fund distributors were sent mails highlighting KYC validation steps, potential reasons why KYC might be put on hold, and the list of officially valid documents as mandated by SEBI. The correspondence also included resources and support contact points for distributors.

However, confusion arose among distributors due to inconsistent guidance from RTA regarding the acceptable forms of officially recognised documents.

For example, while a driving licence is typically considered an officially valid document for KYC purposes according to KFintech, CAMS has indicated, according to public reports, that individuals who completed their KYC using a driving licence will need to undergo the process again. Hence investors who have originally done their KYC using a driving licence may have to keep this grey area in mind when doing their investments beginning April 1.

Some relief

Amidst the confusion, a communication from CDSL Ventures, on March 28, has provided some relief for existing mutual fund investors regarding re-KYC. While the re-KYC mandate still stands for getting onboarded with new intermediaries, existing investors are no longer required to redo their KYC if they continue investing with their current SEBI-registered intermediaries.

It should be noted that the investors’ KYC statuses vary based on the initial documents submitted and the validation of their email and mobile by the KRA. Investors can check their status from any one of the KRA websites, such as CVL KRA, NDML KRA, Karvy KRA, and CAMS KRA. First, if the status is validated, then it means that KYC was Aadhaar-based and both contact details are validated. Investors can transact freely across all fund houses. Second, if the status shows as verified or registered, then it means that KYC was based on OVD other than Aadhaar, and contact details has to be validated. Investors can transact with existing fund houses but need fresh KYC for new ones as mentioned in the circular by CDSL Ventures. Finally, if the status appears as on hold, then it means that KYC was based on non-OVD documents, restricting transactions until updated.

Bottomline

If you missed the March 31 deadline, fret not. You can still do the necessary revalidation/updation and continue investing. For investors, the process of re-validating KYC could either involve verifying mobile numbers and email IDs and/or updating KYC records alongside, if necessary. The good news is that this can be done online by going to one of the KRA websites.

According to Abdulla Chaudhari, Head - Investor Services of Edelweiss MF, the KYC status that is put on hold will last only for 3 days. Investors may reapply after this period, either online or offline. Similarly, if modifying an existing KYC is put on hold, the hold period is also 3 days, after which it gets rejected. Investors can then resubmit modifications online or offline. Our enquiries with other AMCs also suggest that the updation can be done online.

(This article has been updated and republished to include the latest information)

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