Failure to record the demise of an account holder in a demat account could result in complications for a stockbroker, shareholder, stock exchange, depositories and SEBI. Therefore, it is crucial to ensure that the depository system accurately records the passing of an account holder. One such interesting case came before the Securities Appellate Tribunal recently.
Separately, SEBI has recently introduced a centralized reporting mechanism through KYC Registration Agency (KRA) for investor demise notifications. This aims to streamline the securities market transmission process. The SEBI circular outlines operational guidelines for regulated entities, including intermediaries dealing with natural person investors.
Under the SEBI circular, when an intermediary is informed of an investor’s demise, they must obtain the death certificate and PAN from the notifier. They must then verify the death certificate through online or offline means and keep a self-certified copy of identity proof, the relationship with the deceased, and notifier’s contact details.
If the intermediary cannot access the death certificate, they’ll flag the investor’s KYC status as “On Hold” and request the death certificate from the concerned parties.
Upon verifying the death certificate, the intermediary must promptly submit a “KYC modification request” to the KRA, along with relevant documents. Debit transactions in the deceased investor’s account will be blocked.
The KRA will independently validate the request by the next working day, updating the KYC record as “Blocked Permanently” and informing linked intermediaries. These intermediaries must immediately block debit transactions and notify the notifier/nominee within 5 days, providing the transmission request form and document list.
To ensure consistency, SEBI has asked Stock Exchanges, Depositories, and industry associations (such as AMFI and RAIN) to establish common Standard Operating Procedures (SOP) in consultation with stakeholders, including KRAs. These SOPs will be available on their websites and those of the intermediaries.
This SEBI circular will be effective from January 01, 2024. One can find a copy of the circular dated October 3, 2023, enclosed for reference.
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