The regulator has proposed a framework to ensure the orderly winding down of KYC Registration Agencies
The Securities and Exchange Board of India (Sebi) has proposed a framework to ensure that KYC Registration Agencies (KRAs) can wind down their operations in an organised way if they decide to exit the business or run into regulatory or financial troubles. The regulator has invited public comments on the draft circular named “Consultation paper on Framework for Orderly Winding Down of Critical Operations and Services of a KYC (Know Your Client) Registration Agency (KRA)“ by May 20, 2025.
KRAs play an important role in the capital markets by storing and validating investor KYC data submitted by intermediaries. Given their importance, Sebi said, "It is imperative that the KRAs should have a structured mechanism which will ensure continuity of services of a KRA and seamless transfer of its activities to a designated successor entity, in scenarios such as insolvency, voluntary/involuntary cessation, or regulatory revocation of KRAs."
Under the proposed framework, the regulator has outlined a standard operating procedure (SOP) that KRAs are required to follow in such cases. This includes notifying Sebi and stakeholders, transferring all KYC records securely to another registered KRA, and ensuring continued service during the transition.
The proposed guidelines will also require KRAs to form a board-level oversight committee to manage the wind-down process and submit a final report to Sebi once it is completed. Further, Sebi has asked KRAs to publish their wind-down policy on their websites within 90 days once the circular is finalised.
KRAs will also need to form a board-level oversight committee to manage the wind-down process and submit a final report to Sebi once it’s completed. Additionally, Sebi has asked KRAs to publish their wind-down policy on their websites within 90 days once the circular is finalised.
The draft also requires KRAs to follow all relevant laws, including the Sebi Act, the Prevention of Money Laundering Act (PMLA), and the Insolvency and Bankruptcy Code (IBC). It also asks them to review and update their winding-down plans regularly to keep them up-to-date.