One-Size-Fits-All in India as New Regulatory Measures Take Shape – Sharing KYC Data

Indian retail investors are to benefit from a new shared data solution among participants in the finance and banking sector.

India’s banking and financial markets sector shook hands to a new revolutionary concept that will enhance the country’s growing financial sector. Two of the country’s major regulatory bodies have started implementing a single account type for investors thus reducing the onboarding process and diminishing the bureaucracy investors face. The move highlights India’s role of becoming a regional powerhouse in Asia.

Investors in the world’s second most populous nation are to benefit from new measures that enable regulatory authorities to share client data. The latest measure comes as the central bank governor, Raghuram Rajan, looks at evolving the market place.

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Investors will be able to hold one single account for all financial services related activities. A notification issued by the RBI states: “The decisions reviewed included one single demat account for all financial assets, introduction of uniform KYC norms and inter-usability of KYC records across the financial sector, strengthening and deepening the markets for corporate bond, currency derivatives and interest rate futures, and participation of DFIs and FIIs in commodity market.”

The measure follows on from a practice that was implemented three years back, whereby brokers registered with the financial regulator, Securities Exchange Board of India (SEBI) will gain access to a centrally held pool of secure client data, known as KYC registration agency (KRA), with over 20 million investors’ data being held in the register. A client who has been verified by one such SEBI registered broker will be able to open a new account at another broker without undergoing KYC processes.

Anuj Ojha, a trader from Pune, explained to Forex Magnates: “This will definitely boost activity as mutual fund investors can easily open stock-broking accounts.”

The new mechanism is expected to bolster the financial markets sector as it makes the onboarding process much simpler. In addition, novice investors who have been distracted from investing because of the lengthy process will find solace in the new regime.

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“The entities, regulated by other regulators in the financial sector specified by the Board from time to time, may access the system of KRA for undertaking KYC of their clients who engage them for financial services,” SEBI said in a notification.

On the other hand, critics argue that although the new solution will simplify and integrate the financial and banking industry, the possibility of financial related crime can grow as firms will not carry out their own due diligence processes on clients.

“If a fraudster slips through the system he/she can set up accounts in several establishments, carry out the illicit act and before the authorities find out, its too late,” explained a Mumbai-based financial services lawyer who remained anonymous.

Despite India’s strong economic position internationally, it still ranks poorly on the global Corruption Perceptions Index, in 2013 it was ranked 94th out of 176 countries.

The practice of a single account for all services can potentially take off in developed, well-governed markets where regulators have established strong KYC and AML measures. Retail investors in the FX and CFD arena hold a number of accounts, according to research carried out by Investment Trends, traders usually having up to four trading accounts with several brokerages.

A one-size-fits-all mechanism will be welcomed in the sector where clients have a high churn rate, thus making the process for both parties more streamlined.

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