Streamlining of the process for surrender of (Know Your Client) Registration Agency (KRA) registration and Impact on SEBI-regulated AIFs
Background
Summary of the Circular (SEBI/HO/MIRSD/PODFATF/P/CIR/2025/123, dated September 5, 2025)
This circular relates to the streamlined process for surrender of Know Your Client Registration Agency (KRA) registration. KRAs are central to maintaining investor KYC records for all SEBI-regulated intermediaries, including Alternative Investment Funds (AIFs).
Key provisions:
Covers voluntary and involuntary surrender of KRA license (business exit, financial distress, or regulatory action).
Mandates secure transfer of all investor KYC records to another SEBI-registered KRA without requiring fresh KYC.
Requires a Standard Operating Procedure (SOP) (board-approved, uniform across KRAs, published within 90 days).
Oversight Committee to supervise winding down.
Timelines: Board resolution (Day T), SEBI intimation (T+7), stakeholder communication (T+14), data migration (T+60), closure (T+75), compliance report (T+90).
Investor protection: Public notices, continuity of services, 12-month support desk post-exit.
Impact on SEBI-regulated AIFs
While the circular is directed at KRAs, it has significant downstream implications for AIFs, since all AIF investors must be KYC-verified through KRAs under SEBI regulations.
1. KYC Continuity and Investor Experience
If a KRA surrenders its registration, AIF investors will not need to redo KYC.
Seamless transfer of records ensures that investor onboarding and redemptions remain uninterrupted.
2. Operational Adjustments for AIFs
AIFs must ensure their backend systems (integrated with KRAs) can align with a new Transferee KRA’s technical framework.
Fund administrators, custodians, and distributors associated with the AIF may also need to update their integration.
3. Compliance Oversight
The AIF’s compliance officer should monitor which KRA holds investor records and keep SEBI-mandated documentation updated.
Any change in KRA should be documented in internal compliance manuals and agreements with intermediaries.
4. Investor Communication
AIF managers should proactively communicate with investors if their KYC records are transferred, even though the Transferor KRA bears this responsibility.
This helps maintain investor confidence and avoids confusion during the transition period.
5. Risk Management
In cases of involuntary surrender (e.g., regulatory action against a KRA), AIFs must be prepared to coordinate swiftly with the new KRA to prevent disruptions in capital calls, subscriptions, or redemptions.
In short:
For AIFs, the circular ensures greater certainty and stability in investor KYC management, even if a KRA exits the market. It reduces systemic risk and protects investors from service disruption, but it also requires AIF managers to stay vigilant on KRA integrations, investor communication, and compliance updates.