KYC Registration Agency

Before 2012, an investor had to prove who they were again and again. Buying a mutual fund meant one check. Opening a demat account meant another. Signing with a portfolio manager meant a third. Each one needed its own set of photocopies.

SEBI fixed this. It made a uniform KYC procedure compulsory for clients from 1 January 2012. KYC means Know Your Customer: the checks that prove who a client is. SEBI also set up the KYC Registration Agency system to make it work. Say an investor has done KYC with one of the listed intermediaries. They can use the same KYC to invest with a mutual fund, and the other way round.

The uniform rules cover mutual funds, depository participants, stock brokers, portfolio managers, venture capital funds and collective investment schemes.

The duty is not just a SEBI convenience. It comes from the Prevention of Money Laundering Act, 2002. That law says the people in financial deals must be known and checked. It also makes banks, financial institutions, mutual funds, insurers and other intermediaries keep records.

The KYC form has two parts. Part one carries the information that establishes identity and address and is common to all intermediaries — that is what the KRA holds. Part two collects whatever additional information the particular intermediary needs.

Verification means proof of identity with a document carrying the investor's photograph — passport, driving licence, voter's identity card, Aadhaar — and proof of address, from the passport, ration card, voter's identity card or latest utility bills, together with verification of the PAN card where available. The e-KYC service of UIDAI is a recognised alternative, with the client authorising the intermediary to access identity and address data from the UIDAI system.

Above the KRAs sits the Central KYC Records Registry (CKYCR). By notification dated 26 November 2015 the Government authorised CERSAI to act as the Central KYC Record Registry under the PML Rules — receiving, storing, safeguarding and retrieving KYC records in digital form. Registered intermediaries have had to upload KYC records for all individual accounts opened on or after 1 August 2016. CKYCR de-duplicates the records it receives and issues a unique KYC Identifier for each client, operates from 2016, serves reporting entities of all four financial-sector regulators — RBI, SEBI, IRDAI and PFRDA — and charges a prescribed fee, payable in advance.

Where a customer submits a KYC Identifier, the reporting entity downloads the record and shall not ask for the documents again — unless the customer's information has changed, the current address needs verifying, or the entity considers it necessary to verify identity or address, perform enhanced due diligence, or build an appropriate risk profile.

A client comes to an adviser with Rs 85,00,000 to deploy.

All four intermediaries are inside the uniform KYC net. One verified KRA record, and its KYC Identifier, serves every one of them — part one of the form is downloaded rather than re-collected, and each intermediary asks only for its own part two.

Now his daughter, a first-time investor, starts a Rs 3,000 a month SIP — Rs 36,000 a year. Micro investments, meaning investments up to Rs 50,000 in aggregate under all schemes of a fund house, reckoned on a rolling twelve-month period or in a financial year, are exempt from producing PAN. She is inside it, so:

• PAN: not required. She quotes a "PAN Exempt KYC Ref No." in the application form.
• KYC: still required, and she must comply through a registered KRA or UIDAI. The exemption is from PAN, not from KYC.

Raise that SIP to Rs 5,000 a month — Rs 60,000 a year — and the aggregate crosses Rs 50,000, so PAN becomes mandatory. And had the investor been a HUF rather than an individual, the exemption would never have been available at any amount: micro-investment relief is for individual investors alone.

Chapter 17 (Operational Aspects of Investment Management), section 17.2 — the Know Your Customer process, the uniform KYC process for securities markets, and 17.2.3 on Centralised KYC Registration Agencies. Questions ask which intermediaries the uniform norms cover, from what date it applies, what parts one and two of the form contain, which body was authorised as the Central KYC Record Registry and when, from what date individual account records must be uploaded, and the micro-investment PAN exemption limit and its conditions.

• A KRA is not the CKYCR. KRAs are SEBI's system for the securities market; the Central KYC Records Registry is run by CERSAI under the PML Rules and serves reporting entities of RBI, SEBI, IRDAI and PFRDA alike. Questions set the two against each other.
• PAN exemption is not KYC exemption. Micro investors still complete KYC through a registered KRA or UIDAI, quoting a PAN Exempt KYC Ref No instead of a PAN.
• The Rs 50,000 micro-investment limit is an aggregate across all schemes of one fund house, on a rolling twelve-month or financial-year basis — not per scheme and not per instalment.
• Only individuals qualify for the micro-investment exemption. HUFs and non-individual investors do not, at any amount.
• A KYC Identifier does not always avoid fresh documents. The reporting entity may still ask where information has changed, where the current address needs verification, or where enhanced due diligence or risk profiling requires it.
• The KYC duty comes from the PMLA, 2002, not from SEBI's own initiative — which is why it reaches banks, insurers, post office products and NPS, and not only the securities market.