SEBI fines stock broker whose 1,103 clients were 'dependent children' between 34 and 100 years

The market regulator fined the stock broker Rs 9 lakh, through an order issued recently.

The market regulator ran into a curious instance of more than 1,100 clients of a stock broker being 'dependent children' but aged between 34 and 100 years.

Stock brokers are required to assign a unique client code (UCC) to each investor and have individual contact details for each of these UCCs. These contact details are used by the exchanges to alert an investor daily about the transactions that have been done in his/her account, so that no authorised trading can be done through an individual's account.  Multiple UCCs can share contact details, i.e. have the same phone number or email ID, if they are from the same family and declare the relationship status--as self, spouse, dependent children and dependent parents.

While carrying out an inspection at stock-broker Stockholding Services Ltd, the Securities and Exchange Board of India (SEBI) found that for 1,103 UCCs sharing contact details, the relationship was given as dependent children. But, the age of these dependent children fell well into adult years--between 34 and 100.

Also read: ICICI Securities pays Rs 40.2 lakh to settle allegations of violations of Stock Broker Regulations

On January 7, the regulator passed an order asking Stockholding Services to pay a fine of Rs 9 lakh for violating various regulations which were largely around capturing the Know Your Customer (KYC) details of clients, including their contact details.

The violations included not carrying out due diligence while capturing relationship data, uploading mismatched contact details to both exchanges, uploading invalid contact details to the exchanges, uploading contact details of the authorised person (APs) instead of details of the client and uploading incorrect bank details of clients to the exchanges.

On the discrepancy around the 1,103 UCCs, with aging dependent children, the stock broker told the regulator that this largely from confusion in the minds of the clients and changing norms.

According to the SEBI order, the broker submitted, "it appears that these clients were having lack of clarity about providing a declaration of the mobile numbers and email ID/along with providing relationship details. We have number of large old accounts of many senior citizens and others who did not have their individual email id and mobile numbers at the time of account opening, when the regulatory requirements of exchanges were not applicable; hence it took time to get these rectifications."

The broker later said that they have updated the KYC details of 947 clients and that they have suspended the remaining 156 client accounts.

In the order, SEBI's Adjudicating Officer Amar Navlani noted that the broker has corrected majority of the observations highlighted by the regulator.

However, Navlani wrote, that the regulator had uncovered "persistent noncompliances and continued material supervisory concerns and that the violations were systemic and repetitive in nature."

He explained the importance of KYC norms, noting that these "are mandated inter alia with main aim to verify the identity of clients, nature and purpose of client relationships and examine the probabilities of any illegal wrongdoings besides aiding in ensuring legitimacy and transparency".