Sucheta Dalal :InvestorsR17; trip to harassment: multiple ID numbers
Sucheta Dalal

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Investors’ trip to harassment: multiple ID numbers  

Jan 15, 2007

Last week, we pointed to the mindless multiplicity of paperwork because each financial regulator is separately implementing know your customer (KYC) rules under the Money Laundering Act. This is causing needless hardship to ordinary people.

In a week when the Sensex has jumped over 700 points, it would be naïve to expect that investors’ paper-work problems will catch the attention of government policy makers. But the hurdles to acquiring valid identification proof warrant discussion before the insurance regulator, the telecom regulator (already required for mobile phones and CAS connections) and the electricity regulator also order another round of identification cards by threatening to block services.

S. Anand, an investor, makes some pertinent points in his letter to M. Damodaran, chairman of the Securities and Exchange Board of India (Sebi). He says, ordinarily a citizen would not quibble with the idea of obtaining a MIN (mutual fund identification number), which promises to dispense with the need for repeated submission of identification documents. But it has turned bizarre because Sebi made the same promise when is launched MAPIN (a biometric identification for all investors) that was abandoned after thousands of people had already obtained it.

Anand says, “In a country that calls itself the IT capital of the world, is it not possible to simply convert the UIN/MAPIN to a MIN? Should not a rose by any name smell just as sweet?” He is absolutely right. But that would have required National Securities Depository Ltd (NSDL) to share the MAPIN database with rival Central Depository Services Ltd (CDSL), which is creating the MIN database for Association of Mutual Funds of India (Amfi). If Sebi had owned the data collected for MAPIN, it could have been shared with AMFI.

Acquiring the MAPIN was a story in itself. Anand says, “I distinctly remember standing in a mile long queue at the fag end of 2004 to get myself fingerprinted so that I could be allotted a UIN/MAPIN. My 73 year old, senior citizen father spent many hours on a congested road, dodging moving traffic, under a blinding sun, so he could abide by that Sebi diktat, at great physical cost, not to mention the fiscal one of funding the procedure. Soon thereafter, we were informed that this compliance was not essential”.

Well, MAPIN was hurriedly introduced by a Sebi chairman hoping his term would be extended and was rolled out without adequate service centres or consideration for the aged and infirm. A committee later said that it was also needlessly expensive.

Security of information collected by the service agents is another concern for Anand, but there is no clarity on that issue. The facts are that MAPIN was created by NSDL and MIN by a CDSL subsidiary. After a detailed inspection of their systems, Sebi had recorded serious problems with operations and procedures of both depositories and even recommended management changes. Sebi’s inspection reports are not in public domain, but it is locked in several bruising battles with NSDL in various appellate forums.

Further, although both depositories are technically under Sebi’s supervision, it had absolutely no power to regulate or even inspect their non-depository operations. This would include the extensive Tax Information Network set up by NSDL, the database of IT professionals that it is creating for Nasscom through a subsidiary company and now the MIN database created for Amfi by CDSL’s subsidiary.

Even PAN cards for the Income Tax department are being issued by capital market intermediaries but there is no clarity on who will regulate any of these from the perspective of data security or identity theft and who has the power to initiate action in case of wrong doing.

This writer had raised concerns about the lack of clarity about depository regulation a couple of years ago. But the Finance Ministry seems to be busy basking in the euphoria of a three-year monster bull run to worry about the issue.

As far as MIN is concerned, V.G. Patel of Ahmedabad points out how it is “proving to be a nuisance for HUF (Hindu Undivided Family) and Partnerships”. HUFs, are being asked to submit a PAN, bank passbook and registration number as proof of identity. But HUFs do not need registration and an income tax assessment order confirms their formal existence. But this is not acceptable to service agents. Partnership firms face the same dilemma. Since no decision has been made with regard to their representations, they are currently in limbo.

Gyan Swarup Gupta, a retired senior citizen shares a third problem. Neither he nor his wife is a taxpayer. He inherited a small number of shares that he held in physical form. Since Sebi made dematerialisation mandatory for secondary market transactions, he opened a demat account. Now the account is frozen until he gets himself a PAN number. He wonders why he must be forced to get a PAN card when he may only ever want to exit and dispose his share holding.

Will his voice be heard?

S.P.V. Ramanathan’s problem is slightly different. He is being fined Rs 100 a day, inspite of submitting a PAN card. The name on his PAN card and his trading account is S.P.V..Ramanathan, while the NSDL website has expanded his name by spelling his initials. This extends his name to 25-30 characters that usually fall out of the row of check boxes. Ramanathan says, “I come from an area where investing in shares is as old as the BSE and a majority of investors are facing this problem.” He has also done his homework and points to a circular (IMRD/DoP/Dep/Cir-09/064.8) that allows PAN card proof in such situations, subject to verification and documentary evidence. But getting his contention accepted is a fight in itself.

Multiple identity proof options provided by data collection agencies often dwindles because of sloppy entry of names and addresses by public sector utilities. We need to pause and get some basics right before rushing to modernise systems and procedures.

-- Sucheta Dalal