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SEBI Allows Digital Wealth Management Startups To Use DigiLocker For KYC

SEBI Allows Digital Wealth Management Startups To Use DigiLocker For KYC

SEBI registered entities have to complete KYC for investors by obtaining soft copies of documents

DigiLocker e-documents are already approved under PMLA Rules, 2005

The decision will increase the penetration of wealth management platforms in Tier 2, 3, and 4 cities

In a move that can increase adoption of digital investment and wealth management platforms, the Securities and Exchange Board of India (SEBI) has allowed the use of documents digitally stored in the central government’s DigiLocker application for facilitating know your customer (KYC) processes.

In a circular related to updates on KYC, SEBI said that documents issued by the issuing authority to a customer’s DigiLocker account can now be accepted as officially verified documents by SEBI registered entities. Entities can obtain documents to complete the KYC of investors such as the PAN card, Aadhaar, a cancelled cheque, among other documents for completing their registration.

The notice was sent by SEBI to various stakeholders including all recognised stock exchanges, recognised depositories, stockbrokers of recognised stock exchanges, the Association of Mutual Fund of India (AMFI), portfolio managers, KYC registration agencies, alternate investment funds, digital investment and wealth management platforms among others.

SEBI held discussions with the stakeholders and used the feedback to push for ease of investing, which should bring some relief to investors and investment platforms. The current notification is in line with the inclusion of DigiLocker documents in the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. The government had updates these rules in August 2019 to allow stakeholders to accept electronic documents stored in DigiLocker.

However, there were no clear instructions on whether wealth investment platforms could complete the KYC of their consumers through documents stored in DigiLocker earlier. But the current update has now cleared the way for DigiLocker’s usage and adoption in the capital markets ecosystem.

Will Digital Investments Pick Up?

With rising disposable incomes, Indians have changed how they invest their wealth and assets. A 2018 report by Confederation of Indian Industries (CII) estimates that Indian mutual fund market will grow at a CAGR of 18% to reach an asset under management (AUM) of INR 50 Lakh Cr by 2023.

However, the growth is currently fueled majorly by cities as document verification in Tier 2, 3, and 4 cities become a major challenge due to less workforce. According to Zerodha cofounder Nikhil Kamath cities like Delhi, Mumbai, Bengaluru, Hyderabad, and Chennai are leading the growth. However, the company has started to see traction in Tier 2 and Tier 3 cities as well. “We see a lot of businesses come in from small towns in Gujarat, Tamil Nadu or Karnataka,” he had earlier told ET.

Some of the notable wealth investment platforms in India are Cube Wealth, Groww, INDWealth, Kuvera, Clearfunds, Scripbox, among others. The recent SEBI decision might help these platforms to amass more users from Tier 2, 3, and 4 cities.