SEBI’s New Regulation for Share Transfer After Death: Key Insights

The Securities Exchange Board of India has come up with a solution to a problem that has plagued investors in the market for a while now. The event of demise is always very unfortunate for the family involved. While the emotional turmoil cannot be reduced, better services can secure the family’s financial future. 

After an investor’s demise, transferring securities to their nominees is crucial to safeguard their financial position. In the past, confirmation of death and the actions following that have been lengthy, which has been a hassle for investors. SEBI will now tackle this particular problem through KRAs or KYC Registration Agencies.

That being said, SEBI has now developed a solution within its procedures to help nominees and family members transfer the shares of the original investor to their names seamlessly. Before we get into it, let’s examine what KRAs are and why they are significant for the topic.

What Are KRAs?

By centralising the management and verification of investor KYC data, KRAs, known as “Know Your Customer (KYC) Registration Agencies”, play a crucial role in the Indian securities market. Let’s take a look at some of them:

• Data Storage, Management and Retrieval: They act as a one-stop solution for data storage and retrieval, facilitating and ensuring that KYC documentation and identity verifications comply with regulatory standards established by organisations like the Securities and Exchange Board of India (SEBI).
• Reducing KYC Redundancy: After an investor’s KYC is finished, their information is securely stored, making it possible for intermediaries to access it without needing repeated KYC checks.
• Data Updating: Additionally, the option for investors to update their personal information ensures that all related financial companies can access the most recent information.

Since its debut, investor contacts with financial intermediaries have been simplified, allowing investors to go through the KYC procedure only once rather than multiple times for each firm. Additionally, KRAs have increased investor trust by providing a transparent and standardised process, solidifying its significance in India’s financial transactions.

Who Can Report The Death Of An Investor?

Here are the following individuals who can report the death of the investor:

• Joint account holders (if the deceased investor had a joint account with someone else)
• Nominees (individuals previously designated by the investor to handle the shares upon their death)
• Legal representatives (like lawyers or executors of the deceased’s will)
• Immediate family members.

Post-Verification and Account Status Change

• Upon verifying these documents, all debit transactions (meaning any outflows or selling of shares) in the deceased investor’s account will be halted to prevent unauthorised or mistaken transactions.
• Within 5 days of the death verification, the concerned family member or nominee will receive guidance on the steps and procedures to transfer the shares.
• The deceased investor’s KYC (Know Your Customer) status will be updated to “Blocked Permanently“. This ensures no further activity can happen under the deceased person’s name.

Documents Required 

When reporting the death, the person must provide:

• The deceased investor’s PAN (Permanent Account Number)
• The death certificate to prove the investor’s demise.

What If the Death Certificate Details Are Wrong or Missing?

If the late investor’s ‘notifiers’ fail to provide a death certificate or produce erroneous details within the said report, here’s how the following agencies and intermediaries will proceed:

KYC Status and Communication:

• If the death certificate isn’t provided, the intermediary will set the investor’s KYC status to “On Hold” and inform you or the nominees about this status change, highlighting the need for the document.

KRA System Update and Role:

• Without the death certificate, the intermediary informs the KRA, setting the KYC as “On Hold”. For discrepancies or errors in data, the KRA cooperates with the intermediary for clarification.

Transaction Restrictions and Additional Verification:

• Transactions from the “On Hold” account are blocked. Additional measures like video calls or in-person checks are required to confirm the investor’s status if a transaction request is made.

False Reporting and KYC Reversion:

• If death information is proven false, the intermediary updates the KRA provides a due diligence report, and the KYC status is reverted to ‘Clear or Validated’, with notifications sent to related entities.

The Bottom Line

SEBI’s new regulation aims to standardise and speed up the share transfer process after an investor’s death. This move is expected to significantly reduce the time and challenges previously faced by grieving families. The changes will take effect from January 1, 2024. 

References

https://www.sebi.gov.in/legal/circulars/oct-2023/centralized-mechanism-for-reporting-the-demise-of-an-investor-through-kras_77534.html