SEBI Chairperson Madhabi Puri Buch has said that SEBI is strongly opposed to outsourcing know-your-client (KYC) obligations to private entities, due to concerns about potential "Paytm-like contamination."
Sebi Opposes Decentralized KYC
Sebi Chairperson Madhabi Puri Buch was addressing media questions about simplifying KYC for mutual fund investors and the potential for centralizing KYC across the financial system stating, "The current KYC Registration Agency (KRA) system is widely acknowledged and robust. The KYC procedure does not need to be repeated in the capital markets if your KYC has been confirmed by a KRA."
KRAs, regulated by Sebi, are responsible for maintaining KYC records within the capital market ecosystem. A proposal is under consideration to extend this KRA-like structure to the broader financial market, including banks, insurance companies, and capital market intermediaries.
Buch pointed out during a National Stock Exchange event, saying, "This is the reason we have stated that we would not allow contamination of the Paytm type in our market. We all saw what happened with Paytm. Since the banking system lacks a KRA-type system, Paytm's issues were contained within its system and did not affect other banks. Allowing Paytm into our system without a KRA could have contaminated the entire market. We cannot allow that."
She further emphasized, "We will always have our KRA in place to ensure validations are properly handled. Otherwise, any mischievous player could disrupt the entire system."
RBI Restrictions on Paytm Payments Bank
RBI Restrictions on Paytm Payments Bank on January 31, the Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank (PPBL) due to multiple lapses, including irregularities in the KYC process. PPBL was directed to stop basic banking services from March 15. This action underscored the severe consequences of regulatory non-compliance. While the RBI did not make any public statements detailing the reasons for these extreme measures, it has been noted that the bank's inadequate due diligence on many of its customers was a significant factor that influenced the RBI's decision.
