In a consultation paper issued on Tuesday, the Securities and Exchange Board of India (Sebi) proposed to allow the power of attorney (PoA) holder to operate the investor’s account/folio in situations where the investor is physically incapacitated, but has the capacity to contract.
This comes in the backdrop of the earlier circular issued in January 2025 in which the market regulator had prohibited the PoA holder of the investor to make nomination and had allowed the nominees to act in behalf of incapacitated investors including encashment of a specified share of assets.
The process also involved AMCs/RTA or DPs to send a responsible officer to visit the investor who made the request and determine his/her ability to contract and obtain a thumb or toe impression or a ‘mark’ (based on the nature of incapacitation) on the written request to allow the nominee to transact in the account/folio on behalf of the investor, in the presence of independent witnesses.
However, the regulation has been proposed to be changed due to the feedback received from the industry about the misuse of nomination of incapacitated investors including risk of fraud and legal disputes. Additionally, the industry also cited challenges of high implementation costs and difficulty in maintaining audit trails.
Feedback about investors dropping off?
The regulator also received feedback about investors dropping off during the on-boarding process due to the extent of details required to be shared. To solve this issue, the paper has proposed to keep only name and relationship of the nominee with the investor as mandatory and all other details like percentage share of the nominee, address, mobile number, email ID and personal identifier (like PAN or driving license number or last four digits of Aadhar card) as optional.
Further, due to complaints about the process for opting out of nomination through a video request (like issues related to storing and sharing of videos), the paper proposed to make nomination the default choice for the investor at the time of on-boarding.
Investors who do not wish to nominate at the time of on-boarding will have to opt-out of nomination by providing consent to a pop-up message. The regulated entities have been asked to send messages to existing investors who do not have any nominees or have opted out of nomination to encourage them to use the facility.
The January 2025 circular also capped the maximum number of nominees to 10. Now, the regulator has proposed to cut down on maximum nominees to four, due to the industry feedback of most nominations not going past 3 nominees. The maximum number of holders in a demat account/mutual fund folio will continue to be 3.