Recent tweaks by SEBI in norms pertaining to nominations

SEBI in its 207^th board meeting, which took place on September 30, 2024, came out with a bunch of tweaks, including a few that impact investors. While constant efforts are on to make the investing space more investor-friendly, the current measures too are aimed along the same lines while introducing uniform standards for nomination facilities across the Indian securities market.

Not only death, but also incapacitation

Nominees are also bestowed with the power to act on behalf of incapacitated persons, courtesy of the new amendments, albeit ‘with certain risk mitigation checks and balances’, with such checks and balances yet to be confirmed. Earlier rules allowed nominees to step in, only in the case of death of the account holder.

Joint owner becomes the co-owner

For joint holders in the case of demat accounts and MF folios, nomination is still an option and not a mandate, as was the case before. SEBI has always insisted that the nominee is a trustee representing the legal heirs and need not necessarily be the ultimate owner.

This SEBI meeting added that the rule of survivorship will be applicable in the case of death of one of the joint holders: the right to the asset will be transferred to the surviving joint holders. While earlier norms allowed this only if a survivor or anyone was mentioned, the current tweak results in nominees not having a role to play till the death of all joint holders. Please note that SEBI had earlier mandated either to have a nominee or opt out.

Zeroing in on KYC documents

While the list of documents that could be obtained for KYC of nominees was open-ended and even photo/ signature were considered in a few cases, the recent board meeting decided that the unique identification documents obtained would be either of PAN, Passport or Aadhaar. This is expected to strengthen the verification process and reduce chances of fraud.

How many is too many

The maximum number of nominees for MF and demat accounts has been stretched from 3 to 10. The real intention behind this tweak is unclear, because the introduction of too many nominees might bring in implementation issues, in the case of demise of the account holder, with the co-operation for all nominees paramount for all future transactions such as transfer or transmission or monetisation. It could get more complicated if some of the nominees themselves are deceased before the death of the account holder.

Other norms

Other norms introduced and reiterated in the board meeting are as follows: Creditors’ claims will take precedence over transmission of assets to nominees, if previously pledged. In the case of death of a nominee, no rights will be granted to the nominee’s legal heirs. There is no limit on the number of times a nominee can be changed. And, the option to specify guardians for minor nominees will be available.