The Securities and Exchange Board of India (“SEBI”) has recently put forth a consultation paper proposing substantial revisions to the nominations framework in the securities market. The primary objective is to address the mounting issue of unclaimed assets and streamline the process for claiming these assets by the surviving successors of deceased investors. The proposed changes focus on nomination facilities for a range of securities, including shares, bonds, units of Real Estate Investment Trusts (“REITs”), Infrastructure Investment Trusts (“InvITs”), Alternative Investment Funds (“AIFs”), and mutual funds.
Background and Rational
Unclaimed assets in the Indian securities market have been on the rise, primarily attributed to incomplete or unavailable nominations for financial assets. This has, in turn, complicated the transmission process for the family or successors of the deceased. SEBI's proposed revisions aim to enhance investor convenience, ensure uniformity in procedures, and adhere to prevalent legal systems governing transmission and succession. The regulator emphasizes the importance of enhancing the nomination process to reduce the burden on families and successors in the event of a deceased investor.
Key Proposed Revisions
Firstly, SEBI suggests nominations should be made, changed, or cancelled through safe, secure, and verifiable means. This includes using digital signatures, Aadhaar-based E-sign, physical signatures, or dual authentication. For nominations done via thumb impressions, the presence of two independent witnesses is required to address non-repudiation risks and enhance verifiability.
Moreover, the nomination facilities should permit multiple nominees, and the current limit of three should be increased to two-digit or three-digit numbers. This expanded limit aims to cater to the ordinary requirements of individual investors.
Secondly, Investors should be allowed to make, change, or cancel nomination facilities at any time without restrictions on the frequency of utilization. This flexibility aims to accommodate changes in an investor's circumstances. Further, in cases of joint holdings and the rule of survivorship being applicable, SEBI proposes that no additional documentation related to KYC or undertakings should be required from the surviving joint holders. This streamlining seeks to simplify processes for surviving investors.
Thirdly, in the absence of nominations, legal heirs should be required to produce due evidence and follow prescribed procedures, as per applicable law, for effecting transmission in their favour. This ensures a clear process for the transfer of assets to legal heirs.
And, lastly, SEBI suggests the transfer of unclaimed funds in listed entities, REITs, and InvITs to the Investor Protection and Education Fund (“IPEF”). This aims to centralize unclaimed amounts for easy processing and refunds, simplifying the resolution for investors.
Our Take
The proposed revamping of the nominations framework by SEBI represents a significant step towards reducing unclaimed assets in the securities market and simplifying the process for the transmission of assets to surviving successors. The suggested changes, ranging from digital nomination facilities to streamlined processes for legal heirs, aim to create a more investor-friendly and efficient system. As SEBI seeks public feedback, it remains to be seen how the industry and investors respond to these proposed revisions and whether they will lead to a more robust and responsive nominations framework in the Indian securities market.
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