SEBI makes KYC mandatory for maintaining e-wallets in mutual funds from May 1

Mar 26, 2023

SEBI has urged fund companies to make sure that investors should complete mutual fund transactions using KYC-compliant e-wallets. This will take effect on May 1, 2023. “It should be ensured that all e-wallets are fully compliant with KYC norms as prescribed by Reserve Bank of India," SEBI said in a circular. In 2017, SEBI authorized fund houses to receive up to Rs.50,000 per fund house every fiscal year using e-wallet. After making KYC mandatory for maintaining e-wallets in mutual funds from 1st of May 2023, industry experts are believing that this step taken by the capital markets regulator will boost security and decrease the risk of fraud in mutual fund transactions.

Abhishek Saseendran- CEO, SignDesk said “Making e-wallets used in mutual funds KYC compliant is a welcome move. This will not only help investment firms reduce money laundering risks but will also enable further digitization in finance. Investors can look forward to a completely digital process for mutual fund investments, which is sure to bring in fresh investors driven by convenience. For firms & registered intermediaries, digital KYC is a crucial tool to reduce investor onboarding expenses & ensure compliance with RBI regulations. KYC systems also play an important role in efficiently managing client data & analyzing these to mitigate ID fraud. Overall, introducing KYC compliance for e-wallets will make mutual funds more attractive, secure & easier to use for would-be investors. If there’s one thing that investment firms should be aware of, it’s that KYC data is extremely sensitive & the right access controls should be in place when handling & processing such data. Firms will have to partner with KYC providers who exhibit a real commitment to data protection."

Jitendra Dhaka Founder BankSathi said “Know-your-customer (KYC) requirements will ensure that only authorised users have access to e-wallets, thereby boosting security and decreasing the risk of fraud. By integrating KYC to e-wallets, clients will have improved investment transparency, as they will be able to more easily trace their mutual fund holdings and transactions. After the completion of the KYC procedure, consumers will be able to invest in mutual funds using e-wallets without the burden of continuously providing physical documents."

“It is possible that a large number of people living in Tier 3 and Tier 4 and 5 cities are unfamiliar with the KYC process and struggle to understand the criteria and processes involved in it. And they may not have a sufficient level of literacy in digital media, which makes it difficult to perform KYC through online platforms. Customers that live in more remote areas and do not have access to the internet or cellphones may have a more difficult time completing the Know Your Customer procedure online. As a result, the SEBI and the companies that supply e-wallets have a responsibility to inform users about the advantages of KYC and to simplify the process of completing KYC for customers in Tier 2 and Tier 3 locations. E-wallet service providers should also study other ways for users to complete KYC, such as the installation of kiosks or the formation of partnerships with local agents who can assist customers through the process," Jitendra Dhaka further added by commenting against challenges for Tier 3 4 5 cities customers.

Sonam Chandwani, Managing Partner KS Legal & Associates said “The Securities and Exchange Board of India (SEBI) recently announced that completing the KYC process will be mandatory for maintaining e-wallets in Mutual Funds, effective from 1st May 2023. This regulation is in line with SEBI's efforts to enhance the security and safety of investments made by investors. KYC refers to the process of verifying the identity of an investor in accordance with the guidelines set by SEBI. It is essential for investors to comply with this regulation and complete the KYC process by 1st May 2023. Failure to do so may result in the suspension or closure of their e-wallet accounts. E-wallets have become a popular mode of investment in Mutual Funds as they offer a convenient and secure way to manage investments. However, with the increasing popularity of e-wallets, there has been a rise in the number of fraudulent activities related to them. To mitigate this risk and to safeguard the interests of investors, SEBI has made it mandatory for investors to complete the KYC process for maintaining e-wallets in Mutual Funds."

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