New Delhi, Apr 29 (PTI) Markets regulator Sebi on Tuesday issued a draft framework on the structured exit process for KYC registration agencies and proposed an orderly exit route to safeguard investor data in case of closure of such entities.

KRAs play an important role in the securities market, act as repositories of Know Your Client (KYC) records, and are responsible for storing and retrieving the KYC documents.

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Sebi said, "It is imperative that the KRAs should have a structured mechanism which will ensure continuity of services of a KRA and seamless transfer of its activities to a designated successor entity, in scenarios such as insolvency, voluntary/ involuntary cessation, or regulatory revocation of KRAs".

The Securities and Exchange Board of India (Sebi) has invited public comments on the draft framework till May 20, 2025.

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Under the proposed framework, Sebi said that KRAs will be required to prepare a structured mechanism identifying potential wind-down scenarios, including voluntary exits and involuntary shutdowns due to financial distress or regulatory directives.

They must also identify operations deemed critical -- primarily, registration and modification of KYC records -- and further establish a standard operating procedure (SOP) to ensure seamless migration of data and services, it added.

The markets watchdog noted that in voluntary winding down, KRAs must obtain board approval, notify Sebi and stakeholders, and secure investor data transfer without duplication or loss. In such cases, KRAs would halt new record creation but continue essential services like data fetch and modification during the transition.

In the matter of involuntary shutdowns -- either due to financial distress or regulatory orders -- the same SOP would apply with necessary modifications to account for urgency and compliance requirements.

In cases of involuntary winding down due to regulatory action, Sebi or any other statutory authority may direct a KRA to wind down its critical operations and services. Such action may be taken on grounds including, but not limited to, non-compliance with either the conditions for grant or renewal of registration or any other applicable laws.

In such a scenario, the standard procedure outlined for voluntary winding down will apply, with one key modification. The regulatory directive itself will be construed as a trigger event, replacing the requirement for a formal declaration by the KRA.

Additionally, any case-specific directions or relaxations issued by the regulator at the time of such regulatory action will override the standard provisions and must be followed.

All incidental directions issued by the watchdog in connection with the winding down must also be fully complied with.

Further, KRAs will be required to constitute a regulatory oversight committee to supervise the wind-down process and later it will submit a final report to Sebi after approval from the KRA board.

They must also ensure compliance with relevant laws, including the Sebi Act, Prevention of Money Laundering Act (PMLA), and Insolvency and Bankruptcy Code (IBC).

Each KRA will have the framework containing the standard operating procedure duly approved by their respective board and make it available on their websites within 90 days from the date of issuance of this circular.

The framework must be reviewed at least once every five years and remain applicable throughout the wind-down period.

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