Sebi moots stringent steps to monitor depository participants
Market regulator Sebi today asked depositories to keep a strict vigil on client information, including checks to prevent possible money laundering activities
Mumbai: Market regulator Sebi today asked depositories to keep a strict vigil on client information, including checks to prevent possible money laundering activities, while carrying out inspection of their agents.
The directions from the Securities and Exchange Board of India (Sebi) are part of efforts to ring fence the capital market from possible money laundering as well as other illicit activities and protect the interest of investors.
The market watchdog has asked the depositories to keep a close tab on Know Your Client (KYC) information.
Further, Sebi said that depositories would have to share the risk rating of common depository participants (DPs), who are agents of depositories, with each other.
“For the purpose of determining sample size and frequency of the joint inspection of such common DPs, the higher risk categorisation assigned by any of the depository shall prevail,” the regulator said in a circular.
Sebi has also suggested a methodology for determining sample size pertaining to risk assessment.
These measures are suggested by Depository System Review Committee (DSRC), which was formed by the Securities and Exchange Board of India (Sebi) in December 2012, to review the country’s depository system.
The committee has issued framework that needs to be adopted by depositories– NSDL (National Securities Depository Ltd) and CDSL (Central Depository Service Ltd)–with regard to the inspection of DPs.
As part of checking DPs, Sebi said depositories would have to inspect areas including account opening forms, proof of identity and address, procedure for receiving requests related to demat, delivery instruction slip (DIS).
Besides, they have been asked to carry out proper checks with regard to processing of transactions,
In a circular, Sebi has directed the depositories to check compliance of depository participants with Prevention of Money Laundering Act, 2002.
Among others, depositories would have to jointly inspect participants which are registered with both–CDSL and NSDL. Such a measure, according to Sebi, would help in having better control over depository participants as well as save on time and cost related to regulatory checks.
With respect to assessing the risk related to DPs, Sebi has also asked depositories to periodically undertake risk impact analysis for each of the inspection areas and assign appropriate risk weightage, among others.
Depositories have the mandate to help firms convert their physical shares into dematerialized (demat) form as well as maintain them.