Framework for automated deactivation of trading and demat accounts in cases of inadequate KYCs

July 29, 2022

To
All Recognised Stock Exchanges (except Commodity Derivatives Exchanges)
All Registered Depositories

Dear Sir/Madam,

Securities and Exchange Board of India (“SEBI”) has, vide various Circulars issued from time to time, mandated that addresses form a critical part of the Know Your Client (“KYC”) procedures. Thus, every address recorded for the purpose of compliance with KYC procedure has to be accurate. An intermediary
has to update the address from time to time. However, it has been observed that in some cases accurate/updated addresses of clients are not maintained. This is borne out of the fact that when SEBI issues any notices, etc. during the course of any enforcement proceedings on such addresses, the same remain unserved.

2. To ensure that the client furnishes accurate/updated details of address and to ensure that KYC details are correct, the following framework involving stock exchanges (except Commodity Derivatives Exchanges) and depositories (hereinafter collectively referred to as “the MIIs”) is proposed :

1. 2.1 Where SEBI instructs MIIs to serve any Show Cause Notice (“SCN”) or order issued by SEBI, the MIIs shall arrange to physically deliver the same to the entity. The MIIs shall forward the signed acknowledgement of its receipt by the concerned addressee or its authorized representative to SEBI within a period of 30 working days from the date of receipt of such instructions from SEBI. If none of the MIIs are –
2. 1. (i) able to deliver the SCN or order, as the case may be, at any of the addresses mentioned in the KYC records linked to any trading/demat account of the entity; and
   3. (ii) obtain a signed acknowledgement of its receipt from the entity or its authorized representative,

then all MIIs shall deactivate all trading and demat accounts i.e. implement a restraint/freeze on debit and credit (except for corporate actions) of all trading and demat accounts of the entity based on the entity’s Permanent Account Number (PAN), within 5 working days from the last unsuccessful delivery report.
MIIs shall send an email/SMS to the entity before deactivation. It is clarified that if one of the MIIs is able to deliver the SCN or order, as the case may be, to the entity and obtain signed acknowledgement, then none of the accounts of the entity shall be deactivated. However, the MIIs, through their registered intermediaries, shall ensure that the KYC records linked to all accounts held by the entity, are updated, accurate and confirm the new KYC details to the concerned KYC Registration Agency (KRA).

2.2 Pending pay-in and pay-out obligations and open positions may be permitted to be settled, squared off or closed out, as the case may be, while enforcing the deactivation of trading/demat accounts of such entities.

2.3 MIIs shall ensure that they communicate the details of the deactivation along with reasons thereof to the respective registered intermediary. They shall also ensure that the reasons for the deactivation are displayed in a clear and unambiguous manner, when the entity attempts to transact using his trading/demat account.

2.4 Subject to the above, the MIIs shall ensure that the deactivated accounts are not used for dealing in securities market in any manner whatsoever.

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circular : https://www.dropbox.com/s/wjrfxvm5uf013x0/Framework%20for%20automated%20deactivation%20of%20trading%20and%20demat%20accounts%20in%20cases%20of%20inadequate%20KYCs.pdf?dl=0