Last week, the Securities and Exchange Board of India (SEBI) released detailed guidelines for winding up of a KRA or KYC Registration Agency. This was done so that if any KRA decides to shut shop, there is no impact on the KYC records it maintains and, more importantly, on the overall markets as such. KRAs are important market intermediaries but not much is known about these entities.
So here’ all you need to know about KRAs and the important role they play in the Indian capital markets
What is a KYC Registration Agency?
KYC (Know Your Client) Registration Agency or KRAs, as the name suggests, are companies established to maintain the KYC records of individuals that wish to invest in the stock market. Any entity that wishes to function as a KRA has to mandatorily register with the Securities and Exchange Board of India (SEBI) that grants a licence under the SEBI {KYC (Know Your Client) Registration Agency (KRA)}, Regulations, 2011. The capital market regulator introduced the concept of KRAs with the aim of bringing in uniformity in the KYC requirements of the capital market.
Why is the role of a KRA important in a market ecosystem?
The role of a KRA is of utmost importance in the Indian capital market. That is because KYC is the first step for any potential investor to start his investing journey. When an investor comes to the market for the first time, his complete KYC will be done by the market intermediary through which he is starting his investment journey.
For instance, an individual wants to start an SIP. The mutual fund firm through which he wants to invest will do his KYC and, once done, he can start his investments. Now, let’s say he wants to start another SIP with a different fund house. The new fund house is also mandated by SEBI regulations to do the KYC. But because the KYC has been done earlier, the fund house can just fetch the investor’s KYC record from the KRA and the investments can start immediately.
The presence of a KRA basically ensures that KYC processes need not be repeated every time an investor wants to start investing through a new market intermediary.
How does KRAs get the database of KYC records that it maintains?
All registered market intermediaries including mutual funds and broking companies register with these KRAs. If a new investor comes to the market, these intermediaries collect all the requisite documents and complete the KYC process. KYC refers to the process of collecting and verifying the personal details of an investor -- these include address and bank details as well. Once the process is done at the intermediary level, the KYC details are provided to the KRA, which maintains the details in its database.
How many KRAs are there in India?
As per information available on SEBI website, there are currently six KRAs registered with the capital markets regulator. They are: CAMS Investor Services, CDSL Ventures, Karvy Data Management Services, KFIN Services, NSDL Database Management, and NSE Data & Analytics.
What happens if a KRA decides to shut shop?
Last week, SEBI issued detailed guidelines with respect to surrender of a KRA licence. This was done so that any critical operation and services are not affected as it pertains to the KYC records of millions of investors. Incidentally, SEBI rules mandate interoperability between KRAs and hence any KRA that wishes to wind up operations has to ensure that all the KYC records that it maintains is transferred to another KRA.
The portability of KYC records is considered to be a core function of a KRA and hence considered a “critical” function as well. SEBI has clearly laid down the Standard Operating Procedures or SOPs so that any KRA, if needed to be wound down, can be done in an orderly manner without comprising the safety of the KYC records and the overall market ecosystem as such.
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