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Modernizing Financial ecosystem by govt backed DigiLocker

SEBI regulations increased the credibility of ESG disclosure

SEBI Proposes modernizing India’s financial ecosystem by leveraging govt backed digital infrastructure (DigiLocker) 

The Securities and Exchange Board of India proposal to integrate DigiLocker for managing securities and mutual fund holdings represents a forward-looking initiative aimed at reducing unclaimed assets and streamlining the transfer of financial holdings to rightful heirs.

Securities and Exchange Board of India proposal is a significant step toward modernizing India’s financial ecosystem by leveraging government-backed digital infrastructure like DigiLocker. This initiative could resolve longstanding issues related to unclaimed assets and improve transparency, ease of access, and security in asset management. Stakeholder cooperation, robust data protection measures, and awareness campaigns will be essential for successful implementation.

Key Features of SEBI Proposal for use of DigiLocker

This move by the Securities and Exchange Board of India, inviting public comments on the draft circular, highlights its inclusive approach to policymaking and will likely garner positive feedback from industry stakeholders and investors alike. If implemented effectively, this could set a benchmark for leveraging digital infrastructure to enhance financial inclusion and security. Here’s a closer look at its key aspects:

  • Streamlining Asset Transmission : By linking DigiLocker with mutual fund statements, demat account holdings, and the centralised KYC Registration Agency (KRA) system, Securities and Exchange Board of India aims to simplify the process of asset transmission upon an investor’s demise. Nominees and legal heirs often face delays due to incomplete information or cumbersome processes. This integration would allow easier and quicker access to the deceased investor’s financial holdings.
  • Addressing Unclaimed Assets: Unclaimed assets have been a persistent issue in the securities market. These arise due to factors such as investors passing away without informing their heirs or nominees or outdated records. With DigiLocker acting as a centralized repository, nominees will have a clear view of investments, reducing the scope of unidentified or unclaimed assets.
  • Enhancing Investor Protection: Timely access to financial information ensures that nominees can take appropriate steps to claim the assets without delays, protecting their rights and interests. This transparency aligns with the Securities and Exchange Board of India investor-first approach and strengthens trust in the financial system.
  • Promoting Digital Public Infrastructure: Leveraging DigiLocker not only streamlines processes but also reduces dependency on physical documentation, encouraging digital transformation in the financial sector. This initiative complements the broader goal of creating a robust and efficient digital financial ecosystem in India.

Securities and Exchange Board of India Proactive Approach:

This initiative is part of Securities and Exchange Board of India’s consistent efforts to enhance the efficiency of the securities market. Alongside other reforms, it reflects the Securities and Exchange Board of India commitment to addressing systemic challenges like unclaimed assets.

  • Integration with DigiLocker: Depositories and mutual funds would provide demat and mutual fund holding statements directly on DigiLocker. Investors will have a centralized repository to access all their securities and mutual fund statements.
  • Nominee Details in DigiLocker: DigiLocker users will have the ability to nominate individuals for their accounts, ensuring that nominees can seamlessly access the deceased investor’s holdings.
  • Automated Updates on Investor’s Demise: DigiLocker account status will be updated based on death registration data from the Registrar General of India (RGI) or information from KYC Registration Agencies (KRAs). This automated system will ensure accurate and timely updates, facilitating smoother asset transmission.
  • KYC Registration Agencies’ Role: KYC Registration Agencies will share information on an investor’s demise with DigiLocker, ensuring that financial institutions are informed promptly, which will help reduce unclaimed and unidentified assets.
  • Focus on Investor Protection: By minimizing manual processes and delays, the Securities and Exchange Board of India aims to safeguard investor interests and enable rightful heirs to access financial holdings without administrative hurdles.

Potential Benefits of Securities and Exchange Board of India Proposal:

  • Reduction in Unclaimed Assets: Centralizing information in DigiLocker will help mitigate the problem of unclaimed and unidentified securities, which often arise due to incomplete nominee details or lack of information about an investor’s demise.
  • Improved Access for Nominees: Nominees can directly access holding statements through DigiLocker, reducing the time and effort required to claim assets.
  • Enhanced Digital Infrastructure: Leveraging DigiLocker aligns with India’s push for digital transformation, making the securities market more transparent and efficient.
  • Streamlined Processes: Automating death registrations and linking them with investor accounts simplifies the process of asset transmission, ensuring rightful heirs receive their entitlements promptly.

Challenges and Considerations SEBI Proposal

The Securities and Exchange Board of India proposal to integrate DigiLocker into the financial ecosystem is a commendable initiative that could significantly benefit investors and their nominees. . Here’s a closer look at its key aspects of Challenges and Considerations:

  • Data Privacy and Security : Handling sensitive financial data will require stringent cybersecurity measures to prevent unauthorized access or breaches. Ensuring robust cybersecurity for sensitive financial data in DigiLocker is critical.
  • Nominee Awareness: Investors must be encouraged to update nominee details regularly to make the system effective.
  • Stakeholder Integration: Smooth integration with mutual funds, depositories, and KRA systems will require coordination across multiple entities.
  • Awareness Among Investors: Educating investors about the need to update nominee information in both DigiLocker and their demat/mutual fund accounts is crucial for the success of this system.
  • System Integration and Coordination: Effective collaboration between depositories, mutual funds, KYC registration agencies, DigiLocker, and RGI will be critical for smooth implementation.
  • Data Accuracy and Maintenance: Ensuring that death registrations and investor records are updated promptly and accurately is key to reducing discrepancies.

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