Third-party correspondence address
Also written Third party address as correspondence address
An address belonging to someone other than the client, which SEBI lets a client use for correspondence only if the intermediary also completes full KYC and Rule 9 due diligence on that third party.
In plain language
Contract notes, statements and account alerts go to the correspondence address. Whoever controls that address sees the account's activity — and can hide it from the client.
SEBI does not forbid a client from using someone else's address. A sailor at sea, a student abroad or an elderly parent may genuinely want papers sent to a relative. But it treats the owner of that address as a person the intermediary must know. A client can authorise the address of a third party as a correspondence address, provided all prescribed KYC norms are also fulfilled for the third party.
The rule turns an anonymous mailbox into an identified person.
How it works
The rule (Chapter 7, section 7.1.6):
- The client authorises capture of the third party's address as the correspondence address.
- All prescribed KYC norms are fulfilled for the third party.
- The intermediary obtains proof of identity and proof of address for the third party.
- The intermediary ensures client due diligence norms under Rule 9 of the PML Rules are complied with in respect of the third party.
The surrounding duty. The same section opens with the obligation, from Rule 9(10), to determine at commencement whether the client purports to act on behalf of a juridical person, individual or trust, and to verify that any person purporting to act on the client's behalf is so authorised and verify that person's identity.
Why it connects to beneficial ownership. Rule 9(1)(c) requires the reporting entity to determine whether a client is acting on behalf of a beneficial owner, identify that beneficial owner and verify his identity. SEBI adds that whenever it is apparent that securities in an account are beneficially owned by someone other than the client, that party shall be identified. A third party who receives all the account's correspondence is a fact the intermediary has to weigh in that determination.
Contrast with SARAL. Under SARAL a client may declare his own current residence or correspondence address without any proof. A third party's address is the opposite case: the address may be used, but only with full KYC on its owner.
Foreign nationals and non-residents. In that paragraph of the KYC norms the workbook adds that if correspondence and permanent addresses differ, proof for both shall be submitted.
A worked example
Illustrative clients.
Case 1 — genuine. Mr Arjun Pillai, 26, a marine engineer who spends nine months a year at sea, opens an account with Anantha Stock Broking. He authorises his uncle's Kochi address for correspondence. The broker:
| Step | Done |
|---|---|
| Client's written authorisation for the third-party address | Yes |
| Uncle's proof of identity | Passport |
| Uncle's proof of address | Aadhaar |
| Rule 9 CDD on the uncle | Identity verified; no adverse information |
The address is accepted.
Case 2 — the pattern. Over two months the same broker receives 31 new applications from unrelated individuals in three districts, each authorising the same office address in Surat as correspondence address, each with KYC documents for the same third party, Mr V. Each file on its own is complete.
Taken together, one person will receive the contract notes and statements of 31 accounts he does not own. The workbook defines a mule account as one in a person's name but effectively controlled by another person. The broker cannot treat 31 complete files as 31 unrelated decisions: it examines whether Mr V is the real beneficial owner, records its findings in writing, and if it concludes the activity is suspicious files an STR — without telling any of the 31 or Mr V.
Why NISM asks about it
Chapter 7 (SEBI Guidelines for KYC Norms in Securities Market), section 7.1.6, "Acceptance of third party address as correspondence address", is a short section that produces a reliable question: may a client use a third party's address, and on what condition? Rule 9(1) and 9(10) from Chapter 3, and the beneficial ownership paragraph in section 7.1.7, supply the reasoning behind the condition.
Common exam traps
- It is permitted, not prohibited. The condition is full KYC on the third party.
- Both proof of identity and proof of address of the third party are obtained — not just a copy of a utility bill.
- Rule 9 CDD applies to the third party, not only to the client.
- The client must authorise it. An intermediary does not substitute an address on its own.
- Do not confuse it with the SARAL declaration, where the client's own correspondence address needs no proof at all.
- Complete individual files can still form a suspicious pattern.
Where this is taught
Free preparation for NISM Series XXIVRelated terms
- Beneficial ownerThe investor who owns dematerialised securities for every practical purpose — the depository is the registered owner on the company's books, but the dividends, bonus, rights and votes are the investor's.
- 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.
- 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.
- Mule accountAn account held in one person's name but effectively controlled by another — defined in the SEBI PFUTP Regulations and used to place criminal money without exposing whoever actually owns it.
- SARAL accountA simplified account for resident individuals trading only in the cash segment — no internet, margin or derivatives trading and no power of attorney — needing just one documentary proof of address.
- Positive confirmationSEBI's way of checking a declared address without any document — the intermediary gets a response from the address, by a welcome-kit or statement acknowledgment, a telephone call, or a visit.