With SEBI’s three-month extension to AMCs to pay commission to distributors, you now get a chance to receive your withheld commission till August 21, 2019 subject to fulfilment of all requirement.
While AMFI has sought the market regulator’s clarification whether the additional three-month window given to AMCs to pay withheld commission to distributors applies to assets with incomplete KYC, industry experts including a few operational heads of AMCs believe that the circular includes all requirements be it pending KYC or pending KYD cases.
Distributors say that there is huge assets with incomplete KYC at stake.
Cafemutual spoke to a few distributors and operational heads of AMCs to understand how it all started.
Before 2004, there was no KYC in the mutual fund industry. Distributors just needed to collect application forms and cheques to execute transactions in mutual funds on behalf of their clients.
In 2004, the government made it compulsory for investors to furnish their pan card copy along with the mutual fund application form if the investment amount was Rs.50,000 or above.
Later in 2007, based on SEBI direction, AMFI notified all mutual fund investors to obtain mutual fund identification number (MIN) to invest in mutual funds. Under this initiative, PAN became mandatory for all investors irrespective of the application size. Also, investors had to visit Karvy’s office to undergo in person verification. However, MIN was later abolished within a year due to operational issues.
A year later, SEBI introduced KYC norms for investment in mutual funds to check money-laundering activities. KYC is the process of verifying the identity of clients and assessing potential risks of illegal intentions for the business relationship.
Under KYC norms, investors were required to submit PAN details along with the address proof to invest in mutual funds. Investors who invested Rs.50,000 or more had to submit their KYC. However, there was no uniformity across fund houses. Each AMC followed its own guidelines to do KYC.
In 2012, KYC became mandatory for all investors. SEBI appointed KRAs to bring uniformity across fund houses to do KYC. Simply put, investors could now invest across fund houses by quoting their KYC number allotted by KRAs.
Also, the market regulator has introduced the concept of micro investors. These investors can invest up to Rs.50,000 annually in a single mutual fund per year without a permanent account number (PAN). Instead of PAN, these investors can submit their voter identity card, passport or driving license for photo identification.
To further streamline the process of KYC, the government introduced Central KYC in 2015. The government entrusted an agency called CERSAI to keep KYC records of all customers in the financial sector which can be used by institutions like mutual funds, stock brokers, insurance firms, banks and SEBI registered Investment Advisers to verify and download KYC data. However, the new CKYC forms capture additional details like mother’s name, maiden name and FATCA details.
In 2017, the government had notified linking of Aadhaar with bank accounts and other financial services such as mutual funds and insurance. However, the apex court in September 2018 ruled that financial institutions such as banks, mutual funds and insurance companies cannot make Aadhaar mandatory for investing in mutual funds or buying insurance policies.
Experts believe that many investors who invested before January 1, 2012 have not complied with these norms due to frequent changes.
A Mumbai distributor told Cafemutual that he has been spending most of his productive time in completing pending KYCs. “I have clients who have invested with me before 2004 when there was no KYC at all. Many of these investors are either missing (could not find their geographical presence due to change in location) or not in the country today.”
