The KYC disruption: Investors deserve better than this
New Know-Your-Customer (KYC) regulations effective from 1 April have sent many investors into a tizzy, as they find their accounts locked for failing to meet yet another demand by authorities for verifiable data to establish their identities. Yes, we had a fresh round of KYC compliance. Under revised rules, holders of securities regulated by the Securities and Exchange Board of India (Sebi) had to validate their email IDs in addition to phone and Aadhaar numbers, the latter duly linked with PAN cards issued for taxation.
Past KYC okays obtained with utility bills or bank documents were left invalid by this exercise. As the number of people affected by the lock-out is substantial, this is large-scale disruption. According to a joint release by India’s five KYC registration agencies (KRAs), as many as 12% of the over 108 million investor accounts under Sebi’s oversight have been put “on hold." These can no longer be operated by investors, as their KYC data was found to have gaps.
As a result, they can neither invest further at these windows, nor withdraw funds for any exigency. Even if it is temporary, it’s harsh. By and large, we can assume these are their own reserves—assets acquired with hard-earned and tax-paid money—that they have been barred from.
That too, with less than fair notice, as the high lockout proportion indicates. So many accounts cannot all be fraudulent, surely. With scarce information on what exactly went wrong, locked-out investors have fumbled around to figure out how to rectify the situation.
To be sure, KYC rules are necessary. Equity and mutual fund (MF) holdings must not end up in the wrong hands. Fake accounts need to be nabbed and asset fraud stamped out.
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