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`ICAI must take action on Karvy's auditor'
December, 02nd 2006

The Standing Committee on Finance has said that the Institute of Chartered Accountants of India (ICAI) must take stringent action against Haribhakti & Co, the internal auditor of Karvy, for failing to check or report the opening of multiple depository accounts with same address.

In its report on the recent IPO scam, the committee noted that SEBI had in its interim order of April 2006 highlighted that the agents of Karvy Stock Broking Ltd (depository participant) opened most depository accounts having same addresses.

"These agents had no legal sanction. This was never checked or reported either by the internal auditors (Haribhakti & Co) of Karvy or by external inspection teams of NSDL," the report tabled in Parliament said.

Flouting KYC norms

The committee also said that banks found involved in irregularities in IPOs must promptly initiate criminal proceedings against employees who were involved in flouting of know your customer (KYC) norms.

"Merely causing `regulator discomfort' to the `scamster' banks do not convey necessary message to the individuals who are the real culprits. A clear cut, strong and prompt punishment must be provided for in the system itself so that the fear of `personal punishment' is there," the committee report said.

The Reserve Bank of India had sought to assure the committee that regulatory discomfort, in addition to the penalties, would be imposed on the banks involved in the IPO scam.

"However, the committee strongly feels that the transgression from the guidelines/instructions of the RBI has not taken place without the connivance of officials of the banks, who were found responsible for the irregularities in flouting KYC norms," it has said.

It also recommended that the RBI should periodically monitor the stipulated exposure of banks to the capital market.

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