SEBI Penalizes Stock Broker with 1,103 Clients Listed as 'Dependent Children' Aged 34 to 100 Years

The market regulator encountered a peculiar case involving over 1,100 clients of a stock broker listed as "dependent children," despite being between 34 and 100 years old.

Stock brokers are required to assign a unique client code (UCC) to each investor and maintain individual contact details for each UCC. These details enable exchanges to notify investors daily about transactions in their accounts, ensuring no unauthorized trades occur. While multiple UCCs can share contact information—such as a phone number or email—when they belong to the same family, the relationship must be specified (e.g., self, spouse, dependent children, or dependent parents).

During an inspection of Stockholding Services Ltd, the Securities and Exchange Board of India (SEBI) discovered that 1,103 UCCs listed "dependent children" as their relationship, yet their ages ranged between 34 and 100 years.

On January 7, SEBI imposed a fine of ₹9 lakh on the firm for breaching multiple regulations, primarily concerning the accurate collection and maintenance of Know Your Customer (KYC) information, including contact details.

The violations cited included failing to conduct proper due diligence when recording relationship data, submitting inconsistent contact information to exchanges, uploading invalid contact details, listing authorized persons' (APs) information instead of clients' details, and submitting incorrect bank information for clients.

Regarding the discrepancy with the 1,103 UCCs, the stock broker attributed the issue to client confusion and evolving regulatory norms. According to SEBI's order, the broker explained, "It appears that clients lacked clarity about providing mobile numbers, email IDs, and relationship details. We also have many long-standing accounts held by senior citizens who did not possess individual email IDs or mobile numbers when they opened their accounts before these regulatory requirements existed. Hence, corrections took time."

The broker subsequently updated the KYC details of 947 clients and suspended the remaining 156 accounts.

In his ruling, SEBI Adjudicating Officer Amar Navlani acknowledged that the broker had addressed most of the regulator's observations. However, Navlani highlighted that the violations indicated "persistent noncompliance and continued material supervisory concerns," describing the breaches as "systemic and repetitive."

He emphasized the significance of adhering to KYC norms, which are designed to verify client identities, define the nature of client relationships, and mitigate the risk of illegal activities while promoting legitimacy and transparency.