To address concerns arising from unauthorized transfers of securities from Beneficial Owner (BO) accounts, the Securities and Exchange Board of India (SEBI) issued a Master Circular for Depositories dated October 6, 2023. This circular not only addresses issues related to unauthorized transfers but also harmonizes the classification of inactive/dormant accounts across stock exchanges and depositories while strengthening measures to prevent fraud and misappropriation.
Addressing Concerns of Investors:
The circular emphasizes several safeguards to mitigate risks associated with unauthorized transfers. Firstly, it underscores the importance of investor education, particularly in preserving Delivery Instruction Slips (DIS). Depositories are advised to educate BOs on the significance of not leaving blank or signed DIS with Depository Participants (DPs) or any other entity.
Moreover, DPs are prohibited from accepting pre-signed DIS with blank columns from BOs. In cases where DIS booklets are lost, stolen, or not traceable, BOs must promptly notify DPs in writing. Upon receipt of such notifications, DPs are mandated to cancel the unused DIS and issue a new booklet only upon complete and legitimate requests from BOs.
Classification of Inactive/Dormant Accounts:
To prevent fraud and safeguard the interests of investors with inactive or dormant accounts, the circular provides clear guidelines. An inactive or dormant account is defined as one where no transaction has occurred for a continuous period of 12 months. However, certain credits, such as those due to voluntary corporate actions, may not be considered as transactions for assessing dormancy.
Furthermore, DPs are restricted from issuing more than 10 loose DIS to a single account holder in a financial year, with such issuance requiring the physical presence of the BO and their signature in the presence of an authorized DP official.
Enhanced Verification Measures:
To fortify security measures, DPs are mandated to implement stringent checks and balances, particularly concerning the verification of BO signatures during the processing of DIS. Under exceptional circumstances, DPs are required to cross-check with BOs before acting upon DIS.
In the case of inactive or dormant accounts, DPs must verify transactions with BOs, especially when securities are transferred en masse. Such verification involves recorded phone calls to the registered number of the BO, along with additional authorization by the Compliance Officer or designated senior official of the DP.
