Operational issues in new central KYC trip MFs

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The Association of Mutual Funds in India (AMFI) has said it expects a significant spike in Know Your Customer (KYC) rejections and failures in opening accounts till fund houses adapt to the new Central Know Your Customer (CKYC) system. 

The sector body recently wrote to the Ministry of Finance saying the CKYC data requirements and uploading processes are far more stringent and complicated compared with the current Securities and Exchange Board of India KYC Registration Agency (KRA) Regulations. Switching over to the new system would require extensive training for investors, distributors and staff in all mutual funds and their registrar and transfer agents (RTAs).  

Regulators have instructed all financial institutions to use the CKYC registry, managed by the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (Cersai) for new customers. The new KYC record-keeping agency is jointly promoted by the government and public sector banks. 

The CKYC registry will now replace the multiple KYC-submission processes required to open savings bank accounts, invest in mutual funds and buy life insurance products into a one-time centralised process. 

Banks and insurance companies were asked to upload new client details to the platform from July 15 and brokerages and fund houses from August 1. Cersai has appointed DotEx International, a group company of the National Stock Exchange, to manage the project.

Most of the AMCs, however, are continuing to use the KRA system established under Sebi KYC Registration Agency Regulations, 2013. 

“Despite significant efforts in partnership with DotEx, only three out of 44 mutual fund AMCs have managed to complete the registration process with Cersai. The remaining mutual funds are either in the pre-production testing stage or document verification stage,” said the body in a note to the ministry last month.

The body has pointed out that the existing KYC information in the KRA database would need to be reviewed to identify missing information according to the new CKYC. This will require fund houses to approach investors individually to collect the missing information and documents. 

“Upload of CKYC data requires a digital signature for both maker and checker. This would mean that mutual funds have to procure an adequate number of digital signatures for staff in more than 200 locations and impart proper training in using a digital certificate,” said the note.

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