CIRCULAR
SEBI/HO/EFD1/EFD1_DRA4/P/CIR/2022/104 July 29, 2022
To
All Recognised Stock Exchanges (except Commodity Derivatives Exchanges)
All Registered Depositories
Dear Sir/Madam,
Sub: Framework for automated deactivation of trading and demat accounts in
cases of inadequate KYCs
1. 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:
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
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period of 30 working days from the date of receipt of such instructions from
SEBI. If none of the MIIs are –
(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
(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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2.5 The concerned entity may place a request to the registered intermediaries
with which the entity holds a trading/demat account, seeking re-activation of
trading/demat accounts along with –
(i) the correct proof of address; and,
(ii) signed acknowledgement of receipt of the SCN or order, as the
case may be, issued by SEBI referred to in para 2.1.
2.6 The registered intermediary shall update the KYC records as per the extant
norms and forward the copy of the signed acknowledgement of receipt of the
SCN or order, as the case may be, to the concerned MII for re-activation of
the trading/demat account.
2.7 The concerned MII shall re-activate all trading accounts/demat accounts of
the entity after ensuring that –
(i) the entity has provided a signed acknowledgement of receipt of the
SCN / order passed by SEBI; and,
(ii) confirmation is received from the registered intermediary that the
KYC records are compliant with the extant norms.
The concerned MII shall also inform the above to all other MIIs for re-
activation of trading/ demat accounts. The signed acknowledgement shall
be forwarded by the registered intermediary to the MII within 2 working
days from the date of its receipt from the entity and the MII shall in turn
forward it to SEBI within 2 working days of its receipt.
2.8 The process of reactivating the accounts by the MIIs shall not exceed more
than 5 working days after receipt of request from the entity along with all the
documents mentioned in para 2.5.
2.9 The framework would also apply to joint accounts. However, before de-
activating the joint accounts, MIIs shall endeavor to contact the entity through
the co-holders for delivery of SCN / order simultaneously by following the
same process outlined above.
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2.10 The MIIs may deviate from the provisions of this Circular in appropriate
cases, where the compliance with the framework is hampered due to factors
beyond the control of the entity. In such cases, the MIIs shall record the
reasons for deviating from the mandate of the framework and communicate
the same to SEBI within 2 working days of such deviation.
2.11 MIIs shall have a mechanism for exchange of information and coordination
amongst themselves for the purpose of implementing the framework
described in this Circular. MIIs shall submit a consolidated report indicating
status of requests forwarded by SEBI, on a monthly basis.
2.12 MIIs shall advise their registered intermediaries to ensure updation of KYC
records at regular intervals as per the extant norms. This framework shall be
in addition to and not in derogation of any Circular issued by SEBI or the MIIs
with respect to KYC requirements or Unique Client Code norms.
2.13 An Illustration covering different scenarios is provided as Annexure-A.
3. The framework described in this Circular shall come into effect from August 31,
2022.
4. This Circular is issued in exercise of powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act, 1992, to protect the interests
of investors in securities and to promote the development of, and to regulate
the securities markets.
Yours faithfully,
TVVPS Chakravarti T
General Manager
Enforcement Department – 1
chakravartit@sebi.gov.in
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Annexure - A
Illustration:
Scenarios: Delivery failure, deactivation of accounts and reactivation of accounts.
SEBI advises the exchanges and depositories to serve the SCN on August 01, 2022. For the
sake of simplicity, it is assumed that the entity has accounts with BSE, NSE, NSDL and CDSL
with each account having different addresses* and that all calendar days are working days.
The following table depicts the course of action that would be taken by the MIIs depending on
the circumstances.
Action BSE NSE NSDL CDSL
Physical delivery BSE makes multiple NSE attempts NSDL CDSL
of SCN attempts on different the service on attempts the attempts the
addresses from August August 15, service on service on
1, 2022 to August 25, 2022 and the August 16, August 16,
2022 and the delivery at delivery 2022 and the 2022 and the
all locations becomes becomes delivery delivery
unsuccessful. unsuccessful. becomes becomes
unsuccessful. unsuccessful.
Sharing of The details of The details of The details of The details of
information on unsuccessful delivery unsuccessful unsuccessful unsuccessful
delivery status shall be shared with all delivery shall delivery shall delivery shall
the other MIIs on August be shared be shared be shared
25, 2022. with all the with all the with all the
other MIIs on other MIIs on other MIIs on
August 15, August 16, August 16,
2022. 2022. 2022.
Implementing Freeze shall be implemented by MIIs by August 30, 2022 as the last date
freeze on debit of unsuccessful delivery is August 25, 2022. Before deactivation of the
and credit of accounts, the MIIs shall once again reach out to the entity through
trading/demat email/SMS. Pursuant to the implementation of freeze, the reasons for the
accounts (within 5 same shall be informed to the concerned intermediary and also displayed
working days to the entity when an attempt is made to transact through his
from the last trading/demat account.
unsuccessful
delivery report)
Submission of The entity submits NA NA NA
updated KYC by updated KYC and the
the entity signed
acknowledgement to the
registered intermediary
of BSE through which it
is registered, on October
01, 2022. The
intermediary shall
intimate the same to
BSE immediately. The
registered intermediary
shall also confirm the
updated KYC details to
the concerned KRA.
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Action BSE NSE NSDL CDSL
Re-activation of BSE shall re-activate the All the demat and trading accounts shall be
demat and trading accounts and inform all re-activated within October 06, 2022.
accounts (within 5 the other MIIs within
working days October 06, 2022 as the
from the date of date of submission of
request by the request by the entity was
entity) October 01, 2022.
Forwarding of Signed NA NA NA
signed acknowledgement shall
acknowledgement be forwarded to BSE by
to MII within 2 the registered
working days intermediary within
from date of October 03, 2022 as the
receipt by the date of receipt of signed
intermediary acknowledgement by
the intermediary was
October 01, 2022.
Forwarding of In case the signed NA NA NA
signed acknowledgment is
acknowledgement received by BSE on
to SEBI within 2 October 10, 2022, the
working days same shall be forwarded
from the date of to SEBI within October
receipt by MII 12, 2022.
*-In cases where the same address is available across the MIIs, the MIIs shall co-ordinate
among themselves and share the information to avoid duplication of efforts.
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