SEBI Issues Framework for Orderly Surrender and Winding Down of KYC Registration Agencies [Read Circular]
SEBI issued a framework for the orderly surrender and winding down of KYC Registration Agencies.
SEBI - Taxscan
SEBI - Taxscan
The Securities and Exchange Board of India (SEBI) has issued a circular dated September 5, 2025, announcing a new framework to streamline the process for the surrender of registration by Know Your Client (KYC) Registration Agencies (KRAs).
SEBI has laid down a uniform framework for how KRAs (entities that manage KYC records of investors) can surrender their registration and wind down operations. The idea is to ensure that, whether voluntarily or involuntarily, investors and intermediaries do not face disruptions in services.
Types of Surrender
- Voluntary surrender: When a KRA chooses to shut down due to strategic or business decisions.
- Involuntary surrender: When the closure is due to financial distress or regulatory action (such as suspension or cancellation of license).
Key Provisions
- Critical operations: Registration, modification, and maintenance of KYC records are considered critical functions of a KRA. These must continue smoothly even during winding down.
- Transfer of Records: A KRA exiting (Transferor KRA) must securely transfer all KYC records, including updates and audit trails, to another SEBI-registered KRA (Transferee KRA). This ensures clients don’t have to redo their KYC.
- Standard Operating Procedure (SOP):
> Every KRA must have a board-approved SOP on how to wind down operations.
> The SOP should cover transfer of data, settlement of obligations, handling of complaints, and timelines.
> SEBI has even provided a model SOP in the annexure. - Oversight Committee: An internal committee must monitor the winding down and ensure investor protection.
- Compliance: KRAs must follow SEBI regulations, PMLA (Prevention of Money Laundering Act), and IBC (Insolvency and Bankruptcy Code) during winding down.
- Transparency: KRAs must inform SEBI, intermediaries, and investors within 7 working days of deciding to exit, and also issue public notices.
Timelines (Indicative for Voluntary Exit)
- Board approval: Day T
- Intimation to SEBI: T + 7 days
- Communication to stakeholders: T + 14 days
- Data migration & system deactivation: T + 60 days
- Audit & closure: T + 75 days
- Compliance report to SEBI: T + 90 days1757069267217
If SEBI directs winding down due to regulatory action, it may appoint a temporary administrator, nominate a Transferee KRA directly, and set shorter timelines to protect market stability.
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