SEBI Fines Stock Broker On Finding Over 1,100 Clients Aged 34-100 Listed As 'Dependent Children'

The Securities and Exchange Board of India has penalised a stockbroker for allegedly failing to adopt due diligence after more than 1,100 of its clients were mentioned as "dependent children" despite being aged between 34 and 100.

The broker, Stockholding Services Ltd., came under the market regulator's radar after an inspection was carried out for the period between April 2022 and June 2023.

"Broker has not carried out due diligence while capturing relationship data for 1,103 UCCs (BSE), i.e., relationships mentioned as dependent children. However, the age was found in the range from 34 to 100 years," SEBI stated in the order issued on Tuesday.

UCCs, or unique client codes, are assigned to each investor and are used by the exchanges to notify the investor whenever a transaction is carried out in their account. Multiple UCCs can share the same contact number if they share family relations, such as spouses, dependent parents, or dependent children.

In its order, SEBI imposed a fine of Rs 9 lakh on Stockholding Services for various violations related to know your customer, or KYC, records, including the contact details of clients.

According to SEBI, a show-cause notice was issued to the broker in December 2023 after it was found that UCCs of adults aged between 34 and 100 were mentioned as "dependent children."

In its reply issued in January last year, Stockholding Services said these clients were seemingly having a lack of clarity about providing a declaration of the mobile numbers and email ID, along with providing relationship details.

"We have a number of large old accounts of many senior citizens and others who did not have their individual email IDs and mobile numbers at the time of account opening, when the regulatory requirements of exchanges were not applicable; hence it took time to get these rectifications," it said.

SEBI, however, observed that the broker’s response may not be accepted as the "regulations and circulars entrust responsibility on the stockbroker for performing due diligence of the clients and updating the necessary KYC details.".

The order further said that the "observations persist during the current inspection despite being communicated in the previous inspection."

The broker, in another reply issued to the market regulator in May last year, said it has updated the know your customer, or KYC, records of 947 out of the 1,103 clients. The remaining 156 clients are already in suspended status, it had claimed.

While SEBI imposed the fine on the broker for the violation of KYC-related norms, it also noted in the order that Stockholding Services has "corrected a majority of the observations" highlighted by the regulator.