Clients of Special Category
Also written CSC · Clients of Special Category (CSC) · Client of Special Category · Special category clients
A named list of client types — NRIs, HNIs, trusts, NGOs, PEPs, non-face-to-face clients and others — on whom SEBI requires enhanced due diligence rather than the ordinary standard.
In plain language
Most clients get ordinary due diligence. Some get more, because of what they are rather than what they have done.
Clients of Special Category is SEBI's closed list of those client types. Being on it is not an accusation and not a bar — it is a statement that the ordinary checks are not enough, and that this relationship needs enhanced due diligence and regular refreshing of the KYC profile.
The list is worth learning by heart, because it is short, closed, and asked directly.
How it works
The SEBI guidelines specify that enhanced due diligence measures should be carried out for Clients of Special Category, which shall include:
- Non-resident Indians (NRIs)
- High net worth individuals (HNIs)
- Trusts, charities, non-governmental organisations (NGOs) and organisations receiving donations
- Companies having close family shareholdings or beneficial ownership
- Politically Exposed Persons (PEPs)
- Clients in high-risk countries
- Non-face-to-face clients
- Clients with dubious reputation as per publicly available information
CSC status interacts with the risk categorisation rather than replacing it. Clients are classified low, medium or high risk on factors such as location (registered office, correspondence address and any other relevant address), nature of business, trading turnover and mode of payment. Clients falling under the special categories may be placed in an even higher risk category if required, and such clients need a higher degree of due diligence and regular updates of the KYC profile.
Two further consequences run through the guidelines. Unusual transactions by CSCs, and business undertaken by offshore banks or financial services, appear expressly in SEBI's illustrative list of circumstances that may be suspicious. And CSCs shall also be subject to appropriate counter measures — further enhanced scrutiny of transactions, enhanced or systematic reporting of financial transactions, and enhanced due diligence when expanding business relationships with an identified country or persons in that country.
A worked example
Konkan Wealth Advisors Pvt Ltd, a portfolio manager, reviews four new clients in one week.
| Client | Why CSC | Consequence |
|---|---|---|
| A Dubai-resident NRI investing Rs 6 crore | NRI, and onboarded non-face-to-face — two grounds | High risk; VIPV recorded and stored; source of funds documented |
| A public charitable trust receiving donations | Trust / organisation receiving donations | Registered on the DARPAN Portal of NITI Aayog; receipts of more than Rs 10 lakh reportable in the monthly NTR |
| A promoter whose family holds 92% of an unlisted company | Company with close family shareholding | Beneficial owners identified down to the natural persons above 10% |
| The spouse of a sitting MP | PEP | Senior management approval before onboarding; source of funds and source of wealth verified |
What enhanced due diligence looked like in practice for the NRI. Standard onboarding would have taken the OVD, the PAN and a bank proof. Instead the firm obtained overseas address proof, recorded and time-stamped the VIPV, documented the source of the Rs 6 crore as sale proceeds of a Mumbai flat with the sale deed on file, set an internal turnover threshold of Rs 1 crore a quarter, and scheduled the KYC profile for refresh every twelve months rather than on the ordinary cycle.
What happens when nobody does this. In the Raima Equities matter, SEBI found the broker had no basis at all for classifying clients into high, medium and low risk and no system to identify whether a client was a PEP — the defence that all clients were introduced by directors or sub-brokers and so were "known persons" was rejected outright. Penalty: Rs 2,00,000 under section 15HB of the SEBI Act.
Why NISM asks about it
Chapter 6 (SEBI Guidelines for AML, CFT and PF), section 6.2.2 (Policy for acceptance of clients), carries the CSC list verbatim, and section 6.2.7 carries the counter-measures. Expect a straight "which of the following is NOT a client of special category?" question, and case-style questions drawn from the Raima Equities order in Chapter 8 on the absence of a PEP identification system.
Common exam traps
- CSC is a list, not a judgement. An HNI is a client of special category by virtue of being an HNI. No suspicion is required and none is implied.
- CSC and high risk are not the same thing. Clients falling under special categories may be placed in an even higher risk category if required; the risk classification is a separate exercise driven by location, business, turnover and mode of payment.
- Non-face-to-face is a CSC ground on its own — which means a large share of digital onboarding starts in the enhanced bracket and has to be managed there.
- "Clients with dubious reputation" is judged on publicly available information, so the obligation is to look, not merely to react to what the client volunteers.
- Enhanced due diligence is not a one-off. The obligation is a higher degree of due diligence and regular updates of the KYC profile.
- Do not answer that a PEP or an NRI must be refused. Nothing in the guidelines prohibits the relationship; they prescribe how it is to be run.
Where this is taught
- Series III-C · Chapter 9: Prevention of Money Laundering Act, 2002introduced here
- Series III-A · Chapter 9: Prevention of Money Laundering Act, 2002introduced here
- Series XXIV · Chapter 6: SEBI Guidelines for Anti Money Laundering (AML) Standards, Combating the Financing of Terrorism (CFT) and Proliferation Financing (PF)introduced here
Related terms
- Client Identification ProcedureThe written procedure each registered intermediary must frame and run to establish the true identity of a client — at onboarding, during transactions, and whenever earlier identification data is doubted.
- Client Due DiligenceScreening and verifying a client using reliable, independent sources — identity, beneficial owner, purpose of the relationship — and then continuing to scrutinise it for as long as it lasts.
- Politically exposed personsA higher-risk class of client that SEBI treats as a client of special category: the intermediary must detect them, obtain senior management approval to deal with them, and verify their source of funds and wealth.
- Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.
- Risk Based ApproachApplying each due diligence measure in proportion to the money-laundering risk a client poses — enhanced diligence for higher-risk clients, simplified for lower-risk, never simplified where suspicion exists.