The Securities and Exchange Board of India (SEBI) has imposed a penalty of ₹9 lakh on Stockholding Services Ltd for multiple violations of Know Your Customer (KYC) regulations, including a bizarre instance where 1,103 client codes (UCCs) were listed as ‘dependent children’ despite the clients being aged between 34-100 years. The discrepancies emerged during SEBI’s inspection of the brokerage, as reported by Moneycontrol.
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Stock brokers are required to assign a unique client code (UCC) for each investor, ensuring contact details are accurate and verified to prevent unauthorised trades. Shared contact details are permitted among family members if relationships are appropriately declared, such as ‘self,’ ‘spouse,’ or ‘dependent children.’ However, Stockholding Services failed to comply with these norms, listing adult individuals as dependent children under 1,103 UCCs.
Responding to SEBI, the brokerage attributed the errors to client confusion over regulatory requirements and historical practices. Stockholding Services explained that older accounts, especially those of senior citizens, lacked individual mobile numbers or email IDs when opened, and clients struggled to update these details as norms evolved. SEBI’s order highlighted that the broker has since updated the KYC details of 947 accounts and suspended 156 others.
The violations extended beyond the UCC anomalies. SEBI noted several lapses, including invalid or mismatched contact details, incorrect bank details, and the use of authorised persons’ contact information instead of the clients’.
Despite corrective actions, SEBI Adjudicating Officer Amar Navlani emphasised the systemic and repetitive nature of these violations. In the order, Navlani stressed the significance of robust KYC norms to verify client identities, ensure transparency, and curb illegal activities.
As Moneycontrol reported, SEBI acknowledged Stockholding Services’ efforts to address most of the irregularities but deemed the breaches serious enough to warrant a financial penalty.
Navlani stated that SEBI had found “persistent noncompliances and ongoing significant supervisory concerns,” highlighting that the violations were both systemic and repetitive in nature.
He further elaborated on the critical role of KYC norms, emphasising their primary purpose — to verify clients’ identities, understand the nature and purpose of client relationships, assess potential illegal activities, and ensure overall legitimacy and transparency.
(Edited by : Shoma Bhattacharjee)
