SEBI Suggests KYC Registration Agencies Operate As Accreditation Bureaus

SEBI Suggests KYC Registration Agencies Operate As Accreditation Bureaus

The regulator has sought public comments on the matter till 8 July

The Securities and Exchange Board of India (SEBI) has proposed that all KYC registration agencies should be eligible to function as accreditation bureaus.

It stated, "The eligibility criteria for accreditation agencies may be expanded such that all KRAs (KYC registration agencies) are eligible to function as accreditation agencies, as against only the subsidiaries of stock exchange and depositories as per current eligibility."

Under the current regulatory framework, only subsidiaries of stock exchanges, under certain conditions, and depositories, are eligible for accreditation.

In its consultation paper, the regulator also suggested facilitating the onboarding of accredited investors based on first-level due diligence by the manager of an AIF.

Presently, two accreditation agencies, CDSL Ventures Ltd (a subsidiary of CDSL) and the NSDL Data Management Ltd (an arm of NSDL), are operational in the securities market. Both are registered with SEBI as KRAs).

Meanwhile, five KRAs are registered with the market watchdog.

SEBI considers it an opportune time to make the transition, as both the currently operational accreditation agencies are KRAs and there would be no disruption to the existing accreditation ecosystem. The increase in the number of accreditation agencies would foster more competition and facilitate cost-efficient services.

On swift onboarding of accredited investors, the regulator suggested allowing AIFs to onboard investors as accredited investors based on the AIF managers' due diligence. However, any amount should be received by the AIF from an investor only after receipt of the respective accreditation certificate from an accreditation agency.

SEBI ruled, "Any commitment made by such provisionally on-boarded investor shall not be included in the calculation of corpus of the scheme until such investor obtains an accreditation certificate from an accreditation agency. Schemes of AIFs shall receive funds from such investors only after they obtain an accreditation certificate from an accreditation agency.”

It added, “The Schemes of AIFs that are close-ended shall not raise any money from such investors and their respective contribution agreements shall be considered null and void if they fail to obtain an accreditation certificate prior to closing.”

In the present system, the manager of an AIF onboards an investor as accredited only after the investor obtains a certificate. The commitment given by the investors is included in the contribution agreement executed between the AIF and the investor.