SEBI eyes tighter e-KYC standards

‘Regulator studying existing Know Your Client norms for use case as part of blockchain initiatives’

Side view of hands using laptop with abstract bitcoin hologram. Technology and innovation concept. Double exposure

In the wake of the Punjab National Bank (PNB) fraud, the Securities and Exchange Board of India (SEBI) is looking to formalise and then tighten its Know Your Client (KYC) norms for the capital markets.Sources said a meeting was held this week to identify the potential use of blockchain in the existing process for SEBI’s registered intermediaries, broking houses and private banks.

The KYC norms apply to the venture capital funds (VCFs), collective investment schemes (CIS) and mutual funds. However, currently there is no specific format. As a result, these intermediaries use different KYC formats and supporting documents, sometimes for the same client.

“We have discussed the preliminary possibilities of converting the e-KYC as use case as part of our blockchain initiatives at SEBI. Once that is done, we would be able to feed the customer due diligence (CDD)/e-KYC data to a central server linked to different blockchain nodes, resulting in simplification and transparency in the market,” said a source.

SEBI has already taken feedback from investors and portfolio managers on how to make the KYC procedures simpler. This is not the first time that SEBI has attempted to bring about uniformity in the securities market.

But now, the regulator has expedited the process, looking at technological solutions in the wake of the fraud at Punjab National Bank.

Earlier attempt

Earlier, to bring about uniformity in securities markets, it was decided that the same KYC form and supporting documents would be used by all captioned SEBI registered intermediaries.

The blockchain is like a ledger with a built-in trust, promising a distributed transaction ledger with identical copies maintained on multiple computer systems and capable of being controlled by different entities.

“The KYC forms are five to six pages long. This is an excellent idea if they are able to standardise the KYC norms using blockchain. Currently, it is too much of a hassle for the investors and customers,” said a senior executive at Motilal Oswal Securities.