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KYC norms force firms to re-check PAN details
March, 07th 2007

As a part of strengtheningthe Know Your Customer (KYC) norms, the permanent account number (PAN) has been made the sole identification number by the regulatory authority in all financial market transactions.

The intention behind this move was to do away with fraud and facilitate an audit trail in case of malpractices found in the system. But it seems that certain individuals with manipulative intentions in the stock market has been finding new ways to effectively execute their plans. This has already raised alarm bells among some domestic brokerage houses which are beginning to re-check all the details pertaining to the clients together with their documentary proofs.

It has come to the notice of some domestic brokerage houses that some of their clients had opened their trading and demat account showing PAN details as the proof of identity.

Once these clients got their accounts opened, they had applied for another PAN card with the income tax authority showing the address proof of some other place and were getting their former PAN cards cancelled. So naturally, all the transaction involved with that particular account would be under the cancelled PAN card.

With the KYC norms being made stringent by the market watchdog Securities and Exchange Board Of India (Sebi), the domestic brokerage houses are finding themselves in a hapless situation.

As inspection of all the accounts maintained by the Depository Participants (DPs) are being made stricter, and an imminent regulatory action on the cards for not adhering to the laid rules and regulations prescribed under KYC norms, these broking houses are feeling the heat now.

The fault lies with the brokerage houses themselves, says an official with a domestic brokerage.

In a booming capital market, to attract more clients and generate large revenues through brokerage fees, these firms had shown some laxity in checking the necessary documents and authenticity of the documents provided by their clients while opening the accounts then.

Sebi had already made it clear way back in August 2004, that many accounts still do not have the necessary details regarding the clients and the trading members should ensure their client details are updated at periodical intervals. Though late, Sebi is handing out stringent punishment for erring members.

Broking houses have issued deadlines to their clients to submit the necessary documents as proof and failure to do so will lead to suspension or freezing of their trading accounts, said an official with a domestic brokerage house.

 
 
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