SEBI Amends Guidelines for Unique Client Code and Requirement of PAN

The Securities and Exchange Board of India, through a Circular No SEBI/HO/CDMRD/DNP/CIR/P/2021/30, issued on 08.03.2020, has notified amendment in the guidelines for Unique Client Code and Requirement of PAN. The guidelines amended will come into force from 01.04.2021.

Further, it shall be noted that the said amendments are made in the SEBI Circular SEBI/HO/CDMRD/DMP/CIR/P/2016/87, issued on 16.09.2016.

In this learning blog, we will cover the concept of Unique Client Code, PAN (Permanent Account Number) and the amended guidelines for Unique Client Code and requirement of PAN.

Concept of Unique Client Code

The term Unique Client Code means a mandatory requirement for brokers, wherein they need to use this code, which is linked to the PAN (Permanent Account Number) of the respective client. The same will work as an exclusive identification for the said client.

Further, the main reason behind the enforcement of this facility was to simplify the process of maintaining clients’ database and to strengthen the KYC (Know Your Client) norms.

Also, Read: Legal Entity Template Rolled Out by SEBI

Concept of Permanent Account Number

PAN is the abbreviated form of Permanent Account Number. It is a unique 10 digits alphanumeric identification number grantedto the taxpayers by the IT (Income Tax) Department. Further, it shall be noted that all the department records all the tax- related transactions and details of an individual or taxpayer against his/ her PAN. Therefore, the same allows the taxpayer to get his/ her tax concerning activities with the department.

Requirements for Amending Guidelines for Unique Client Code and requirement of PAN

The SEBI had passed circular no. SEBI/HO/CDMRD/DMP/CIR/P/2016/87, issued on 16.09.2016, which, inter-alia, prescribed guidelines on the use of UCC (Unique Client Code) and the mandatory requirement of PAN (Permanent Account Number). Further, the use refers to trading on commodity derivative exchanges.

Also, in the Union Budget 2020, our Union Finance Minister, Ms Nirmala Sitharaman, had announced the launch of an instant PAN facility, and consequently, the Income Tax Department has launched the facility of e-PAN, which is generated directly through Aadhar based e-KYC.

However, to streamline the compliance requirement of maintaining and collecting the copies of clients PAN by their respective members and to improve and boost the usage of e-PAN, SEBI has decided to modify some of the provisions of the SEBI Circular issued on 16.09.20216.

Amended Guidelines for Unique Client Code and Requirement of PAN

The provisions amended in the Guidelines for Unique Client Code and Requirement of PAN are as follows:

Clause 3 of the SEBI Circular

It shall be significant to note that all the members of the stock exchanges who have commodity derivatives segment need to use UCC (Unique Client Code) on a mandatory basis for all the clients who are dealing in the commodity derivatives segment.

Further, the stock exchanges with the commodity derivatives segment will not permit the execution of trades till the time members do not furnish the Unique Client Code details.

Also, for this purpose, the members of the exchange will collect the copies of PAN (Permanent Account Number), issued by the Income Tax Department, for all the clients, after verifying the authenticity and validity, and need to maintain the same in their back office as well.

However, in the case of e-PAN, members shall verify the authenticity of e-PAN with the details on the website of the IT Department and maintain the soft copy of PAN in their records.

Clause 5 of the SEBI Circular

All the stock exchanges thathave commodity derivatives segment need to ensure that the members of their exchanges will need to comply with the following:

• Collect all the copies of PAN (Permanent Account Number) cards granted to their both existing and new clients afterverifying and examining with the original;
• Cross-check the above mentioned details collected from the clients with thedetails and information available on the website of the Income Tax Department. However, it shall be noted that in the case of e-PAN, exchanges need to check the authenticity and genuineness of the same with the information available on the official portal of Income Tax Department and require to maintain the soft copy of the same in the record;
• Upload all the details collected concerning e-PAN or PAN as a part of UCC (Unique Client Code);
• Verify and check the documents with respect to the UCC and retain a copy of the document;

Directions for Exchanges with Commodity Derivatives Segment

The directions issued for Exchanges with Commodity Derivatives Segment are as follows:

• To make required amendments in the pertinent by laws, rules, and regulations;
• To bring the provisions of this SEBI Circular to the notice or knowledge of the stock brokers or members of the Exchange;
• To disseminate information on their website;
• To communicate to SEBI (Securities and Exchange Board of India) the status of the execution of the provisions of this SEBI Circular;

Conclusion

In a nutshell, the Securities and Exchange Board of India (SEBI), by using its powers provided under section 11 (1) of the SEBI Act 1992, has issued a circular on the amendment of Guidelines for Unique Client Code and requirement of PAN. The same was done to protect and defend the interests of investors in the securities market and to promote and encourage the development and regulationof the securities market.

Further, the said amendment was made to the SEBI Circular SEBI/ HO/ CDMRD/ DMP/ CIR/ P/ 2016/ 87, issued on 16.09.2016.

Also, Read: SEBI (Annual Report) Rules 2021: A Complete Guide

Official SEBI Circular for Amendment of Guidelines

Official-SEBI-Circular-for-Amendment-of-Guidelines