Indian market regulator prepares for making Aadhar mandatory for stock trading

Securities and Exchange Board of India has taken the preliminary steps to making Aadhar mandatory for buying shares and mutual funds, according to a report by Economic Times.

The market regulator has requested exchanges for their feedback on how prepared brokers are in getting their clients to send Aadhar card information prior to December 31.

BSE asked brokers in a recent pamphlet for their comments on the issue by August 23. Existing clients will have to submit the Aadhar card numbers to their brokers by December 31, while new clients must send the details within six months of starting the demat account.

“In case of failure to submit the documents within the aforesaid time limit, the account shall cease to be operational till the time Aadhaar number is submitted by the client,” the pamphlet said.

The government and SEBI are making Aadhar mandatory as part of its Prevention of Money Laundering (PML) rules, which is designed to prevent the distribution of illegitimate money.

In more recent years, SEBI has gone after individuals and organizations that use the stock exchange platform to convert illegal money into legal money.

The income tax permanent account number (PAN) is currently the most important document when it comes to sharing transactions, however, the government now believes that PAN may not suffice in curbing money laundering through the stock market.

Market participants have reported that multiple PANs and fake demat accounts are being exploited to launder illegal money into the stock market.

The government recently passed legislation in which Aadhaar will be linked to PAN, bank accounts and mobile phone numbers. Brokers said that while they are taking the necessary efforts in preparation for implementing Aadhaar, the task would be extremely tedious.

“It adds to additional cost for brokers but they have no choice but to comply with it,” said Alok Churiwala, managing director at Churiwala Securities. “This is triplication of efforts as without demat, bank account and PAN, one cannot trade and these three are already mandated to be linked to Aadhaar.”

This means the process will be a logistical headache for large retail broking firms such as Angel.

“The issue is that clients don’t respond to SMSes, emails, etc. So, it takes a lot of effort to get this done,” Angel Broking CEO Vinay Agrawal said. “Customers have already linked Aadhaar with PAN and bank account but due to privacy or confidentiality issues these agencies don’t share the details and we have to approach the customers. As brokers, we don’t have a choice but the regulator has given us enough time.”

Earlier this month, the Indian government unveiled plans to make Aadhaar-based authentication mandatory when signing documents such as agreement for sale, power of attorney and will to combat fraudulent transactions and the use of black market money in real estate agreements.

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