Sebi and FinMin Advocate for Centralized KYC Implementation; AI Tools Address Challenges
Markets regulator Sebi is making significant strides towards establishing a centralized Know Your Customer (KYC) system, according to Chairman Tuhin Kanta Pandey. This initiative aims to create an online database that will simplify compliance by consolidating KYC records for customers across various financial institutions. While a specific timeline for implementation has not been disclosed, Pandey expressed optimism about the project’s progress, indicating that it should be operational soon.
Centralized KYC System in Development
Sebi is collaborating with the Ministry of Finance and other financial regulators to develop a centralized KYC system. This system is intended to streamline the process of maintaining KYC records, making it easier for financial institutions to access and utilize this information. During a recent interview with the news agency PTI, Pandey confirmed the ongoing efforts, stating, “Yes, I think we will move forward on that also. We’re really trying to have a system which will be very, very effective.” The finance secretary is leading the committee overseeing this initiative, and efforts are underway to expedite its implementation.
Pandey highlighted the current effectiveness of the KYC Registration Agency (KRA) system, which allows for a single KYC process to be recognized across multiple platforms. He emphasized that the KRA system is not just a tool for uploading data but a fully authenticated setup that interlinks all six KRAs, facilitating seamless data retrieval. This advancement is expected to enhance the efficiency of KYC processes across the financial sector.
Future of KYC Registry
Finance Minister Nirmala Sitharaman announced in her Budget speech that a revamped central KYC registry is set to launch in 2025. Following this announcement, a meeting chaired by Financial Services Secretary M Nagaraju took place in April to review the Central KYC Records Registry. The meeting aimed to address compliance issues and improve access to financial services for consumers. The establishment of a centralized KYC system is anticipated to significantly reduce the burden on customers and financial institutions alike, making it easier to navigate regulatory requirements.
Same-Day Trade Settlements and AI Integration
In addition to the KYC developments, Pandey discussed the introduction of same-day (T+0) trade settlements. He clarified that this system is currently optional, allowing market participants to gradually adapt to the new trading framework. This flexibility is designed to ease the transition for those involved in the financial markets.
On the technological front, Sebi is increasingly leveraging artificial intelligence (AI) to enhance regulatory processes. AI is currently employed for market surveillance and expediting the processing of IPO documents. Pandey noted that the use of AI is expanding into supervisory technology, with plans for further applications in the future. He explained that AI-powered surveillance has proven effective in identifying unauthorized advisory services on digital platforms, leading to the removal of over 70,000 fraudulent investment accounts and misleading posts in collaboration with social media companies.
Addressing AI Risks
While acknowledging the benefits of AI, Pandey also cautioned about the potential risks associated with its use, particularly in algorithmic trading. He stressed the importance of responsible AI development and usage to mitigate any threats that may arise from automated trading systems. “AI has both sides,” he remarked, highlighting the need for a balanced approach as the financial industry continues to integrate advanced technologies into its operations.
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