The market watchdog discovered numerous instances of KYC standard violations, especially involving contact information.
The market watchdog discovered an odd case of over 1,100 stock broker clients who were “dependent children” yet ranged in age from 34 to 100.
Each investor must be assigned a unique client code (UCC), and stock brokers must have a unique contact information for each UCC. In order to prevent unauthorized trading through an individual’s account, the exchanges utilize these contact data to notify investors on a daily basis about the transactions that have occurred in their accounts. If several UCCs belong to the same family and define their relationship status as self, spouse, dependent kid, or dependent parent, they can share contact information, such as the same phone number or email address.
The Securities and Exchange Board of India (SEBI) discovered during an investigation of stock-broker Stockholding Services Ltd. that 1,103 UCCs sharing contact information had the connection listed as dependent children. However, these dependent children ranged in age from 34 to 100, long into adulthood.
The regulator issued an order on January 7th, requesting that Stockholding Services pay a punishment of Rs 9 lakh for breaking several rules, most of which had to do with collecting clients’ Know Your Customer (KYC) information, including their contact details.
.The infractions included failing to exercise due diligence when gathering relationship data, uploading contacts that did not match to both exchanges, uploading invalid contact information to the exchanges, uploading the APs’ contact information in place of the client’s details, and uploading clients’ incorrect bank information to the exchanges.
Regarding the 1,103 UCCs with elderly dependant children, the stock broker informed the regulator that this disparity was mostly caused by clients’ misunderstandings and shifting social mores.
“It seems that these clients were having a lack of clarity regarding the provision of a declaration of the mobile numbers and email ID/along with providing relationship details,” the broker stated in the SEBI ruling. It took some time to obtain these rectifications because we have a number of large, old accounts belonging to many senior citizens and others who did not have their own email addresses or cell numbers when they opened their accounts, when the exchange’s regulatory standards were not relevant.
The broker subsequently stated that they have suspended the accounts of the remaining 156 clients and updated the KYC information for 947 clients.
Amar Navlani, SEBI’s adjudicating officer, stated in the ruling that the broker has addressed the majority of the regulator’s observations.
But according to Navlani, the agency had discovered “continuous material supervisory concerns and persistent non-compliances, and that the violations were systemic and repetitive in nature.”
According to him, the primary goal of KYC regulations is to “verify the identity of clients, nature and purpose of client relationships, and examine the probabilities of any illegal wrongdoings in addition to aiding in ensuring legitimacy and transparency.”