SEBI notifies eight entities to carry out e-KYC Aadhar authentication

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In view of the COVID-19 pandemic, the Government of India, Department of Revenue had vide Gazette Notification No. G.S.R. 261(E) dated April 22, 2020 (“Notification”) permitted, interalia eight reporting entities to carry out electronic know-your-customer (“e-KYC”) Aadhar authentication by exercising its powers under the proviso to Section 11A of the Prevention of Money-Laundering Act, 2002 (“PMLA”).

Section 11A of PMLA lays down the documents using which a reporting entity must verify the identity of its clients and the beneficial owner. E-KYC using Aadhar authentication is only permitted to banking companies. However, if the Central Government is satisfied that a reporting entity other than a banking company, complies with the standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 then it may, post consultation with Unique Identification Authority of India (“UIDAI”) and the appropriate regulator, permit such entity to perform e-KYC using Aadhar authentication.

Accordingly, in furtherance of the Notification, the Securities and Exchange Board of India (“SEBI”), vide its circular dated May 12, 2020 (circular no. SEBI/HO/MIRSD/DOP/CIR/P/20  has allowed the following eight entities to undertake e-KYC Aadhar authentication of their clients:

1.          BSE Limited
2.          National Securities Depository Limited
3.          Central Depository Services (India) Limited
4.          CDSL Ventures Limited
5.          NSDL Database Management Limited
6.          NSE Data and Analytics Limited
7.          CAMS Investor Services Private Limited
8.          Computer Age Management Services Private Limited

The Central Government had also notified Link Intime India Private Limited for carrying out the authentication of the Aadhaar number of clients using e-KYC authentication facility. However, SEBI is yet to recommend them.

The eight notified entities have to register themselves with UIDAI as KYC user agency post which they shall allow SEBI registered intermediaries / mutual fund distributors to undertake Aadhaar authentication in respect of their clients for the purpose of the KYC. The SEBI registered intermediaries / mutual fund distributors who want to avail the facility of Aadhar authentication will have to enter into an agreement with a KYC user agency as well as get themselves registered with UIDAI as sub KYC user agency. The intermediaries registered as KYC user agencies or as sub KYC user agencies are required to follow the processes set out in the SEBI circular dated November 5, 2019, including obtaining permission from UIDAI for sharing e-KYC data, maintenance of auditable logs of transactions were e-KYC data is shared and mechanisms for monitoring irregular transactions. The process and use of technology for online KYC verification has also been clarified by SEBI by way of circular dated April 24, 2020.

This is a welcome move by SEBI given the lockdown prevailing in the country, as this will allow investors to comply with the applicable KYC requirements using Aadhar authentication and they will not have to physically visit the intermediaries. Moreover, it will lead to ease of investing, customer convenience, increased efficiency and reduced timelines for onboarding of clients. Using the e-KYC Aadhar authentication, one can now complete the KYC requirement of their demat account, brokerage account, trading account, make investments in mutual funds and other securities including applying to new systematic investment plan, systematic transfer plan and, dividend transfer plan, subscribe to overseas direct investments. Resident Indian foreign portfolio investors may also utilise the e-KYC Aadhaar authentication to comply with their KYC requirements. Further, one may now undertake e-KYC using Aadhar authentication with their SEBI registered portfolio managers, asset managers and wealth managers and other SEBI registered intermediaries and mutual fund distributors.

It is to be noted that e-KYC using Aadhar authentication is only optional and investors may continue to use the other officially valid documents as notified by the Central Government to be KYC compliant. Additionally, none of the reporting entities can store a client’s core biometric information or the Aadhar number.

Please refer to the SEBI circular dated May 12, 2020 (circular no. SEBI/HO/MIRSD/DOP/CIR/P/20) for more details.

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