Sebi’s New Regulations for Nominee Access and Assets Transfer

Context:

The Securities and Exchange Board of India (SEBI) implemented new rules for mutual fund and demat account nominations. The new rules aim to make it easier to manage assets in case of an investor’s death or illness. 

Key Changes

• Number of nominees: Investors can nominate up to 10 people for their accounts. 
• Nomination process: Investors must nominate people directly, and Power of Attorney holders cannot do so on their behalf. 
• Identification: Nominees must provide identification details like PAN, Aadhaar, or driving license number. 
• Asset distribution: Investors can specify how assets should be distributed among nominees, or the assets will be divided equally. 
• Joint accounts: Assets in joint accounts will automatically transfer to the surviving account holders. 
• Submission methods: Investors can submit nominations online or offline. 
• Reduced documentation: Only a death certificate and the nominee’s KYC (Know Your Customer) verification are required for asset transmission. 

Financial Safety for Families and Nomination Rules

Key Provisions on Financial Safety and Nomination Rules

• Nominee Authority Over Accounts:
  • Nominees can access financial resources of incapacitated clients to ensure family financial security during emergencies.
• Investor Account Access in Incapacity:
  • Nominees can operate accounts if investors are physically incapacitated but mentally capacitated.
  • Redemption proceeds are credited directly into the investor-linked bank account.

Benefits

• The new rules make it easier to manage assets in case of an investor’s death or illness. 
• The new rules reduce the need for affidavits and indemnity bonds, making it quicker and less burdensome for families to access assets. 

Limitations and Exclusions

• Exclusion of Critical Cases:
  • Investors in critical conditions are not covered, leading to concerns about potential misuse of redemption proceeds.

Issues with Banking and Regulatory Conflicts

• Power of Attorney (POA) Requirement:
  • RBI guidelines mandate a POA for nominee access to bank funds.
  • This creates potential conflicts with SEBI rules, requiring harmonization between regulatory frameworks.
• Joint Holdings and Inheritance:
  • SEBI rules transfer the share of a deceased joint holder to surviving joint holders, sparking concerns over fairness and clarity in inheritance.

New Provisions for Nomination and Transmission

• Multiple Nominations:
  • Up to 10 nominees allowed per account or folio.
  • Streamlined process with fewer required documents.
• Nomination Information Requirements:
  • Investors must provide:
    • PAN, driving license, or Aadhaar details.
    • Nominee’s contact information and relationship with the investor.

Recommendations and Issues

• Regulatory Harmonization:
  • Coordination between SEBI, RBI, and other regulators is essential to avoid conflicts and ensure smooth implementation.

Implementation Timeline

• Roll-out Date:
  • AMCs (Asset Management Companies) and depositories must implement the new rules by 1 March 2025.