Sebi Bars Mutual Fund Houses From Seeking Investors' Data For Transactions

The Securities and Exchange Board of India (SEBI) issued a new advisory on April 3, 2024, prohibiting fund houses and other intermediaries from seeking investors' data for any transactions. This decision came after Sebi found non-compliance and compulsory seeking of confidential details violating data sharing principles in the Association of Mutual Funds in India's (AMFI) Best Practice Guidelines issued on March 29, 2022. All Asset Management Companies (AMCs) group companies, Mutual Fund Distributors, Channel Partners, Execution-Only Platform Providers and similar entities are now banned from seeking access to investors' private information, including their location and contact data on mobile devices. This is breaching individuals' privacy, Sebi said.

Further, AMCs are mandated to capture IP address logs for online access by investors for audit trail and to mitigate the risks relating to repudiation.

Sebi's advisory also clarifies that wherever it is necessary to check the geo-location tagging for online KYC applications, it should only be used to check that investors are physically located in India.

Also Read: Sebi Asks Mutual Fund Schemes To Suspend Investments in Foreign ETFs

Why did Sebi make this Decision?

Sebi's decision came after it found that mobile applications offered by AMCs, market intermediaries or platforms were forcing investors to grant access to their location and contact data at the time of setting up the application. Such an action of mandatorily seeking access to investors location and contact data violated the Circular of AMFI Best Practice Guidelines issued on March 29 2022.

What Do AMFI Best Practice Guidelines Say?

Industry platforms, like MF Central, set up by Qualified RTA (QRTA) or Depositories, providing services to investors and other stakeholders for transacting in mutual funds should facilitate data sharing among Asset Management Companies based on these guidelines.

AMCs can share data as may be requested by such platforms and shall enable interoperability amongst and between RTAs and Depositories to enable such platforms to provide a fully integrated experience to investors and other stakeholders.

From AMCs, Stock Exchanges and Mutual Fund Utility (MFU) providing execution platforms to Mutual Fund Distributors or Registered Investment Advisors or Stock Brokers, can only receive data relating to transactions which are routed through their platforms.