SEBI

SEBI Circular on Participation as FIPs in Account Aggregator Framework

On 19th August 2022, vide Circular number SEBI/HO/MRD/DCAP/P/CIR/2022/110, a Circular was issued by the Securities and Exchange Board of India (SEBI) wherein SEBI allowed participation of Depositories and Asset Management Companies (AMCs) as FIPs in Account Aggregator Framework.

Applicability of the Circular on Depositories, AMCs as FIPs in Account Aggregator Framework

The Circular on the “Participation of Depositories, AMCs as FIPs in Account Aggregator Framework” is applicable to the following entities:

All the Depositories

A depository is defined as an organisation that holds securities of investors in electronic form, which involves securities like shares, debentures, bonds, government securities and mutual funds etc. A depository also facilitates the transaction of securities between the depository participants.

All the Asset Management Companies (AMCs)

An Asset management company is a firm that raises capital through pooling funds from its clients and invests such amount into securities like bonds, stocks, real estate, etc. These companies are also referred to as money managers or money management firms.

Who is an Account Aggregator?

An Account Aggregator is an RBI-regulated Non-Banking Finance Company (NBFC) that facilitates and retrieves the financial information, of a customer, from the Financial Information Providers (FIPs) after taking explicit consent from the customer. The role of an Account Aggregator is to help in the organisation, consolidation and presentation of the financial information of the customer to the customer itself or any Financial Information User (FIU) based on the customer’s explicit consent.

The financial information of customers shared through Account Aggregators is not stored by the Account Aggregator, and such information does not become their property. This information cannot be used in any other manner except for the purpose of providing it to the customer itself or the consented FIU.

Highlights of the Circular on FIPs in Account Aggregator Framework

Depositories and AMCs are referred to as FIPs in the securities market.

RBI released Master Directions on NBFC-Account Aggregator in September 2016, making it mandatory for every NBFC-Account Aggregator undertaking the business of account aggregation to comply with these provisions. These master directions provide that the AMCs, through their Registrar and Share Transfer Agents (RTAs) and the Depositories, shall be considered as Financial Information Providers (FIPs) for the purpose of sharing financial information. Thus, from now onwards, both Depositories and AMCs (through their RTAs) shall be referred to as FIPs in the securities market.

FIPs to provide financial information to the customers and FIUs.

The FIPs are required to provide the financial information to the customers and FIUs. They submit the consent artefact (an electronic consent defined under RBI Master Guidelines) through any AA registered with the RBI. Moreover, the FIPs are also required to enter into contractual arrangements with the AAs and such contracts must distinctly specify the following:

1. Rights and Obligations of all the parties
2. Modes of Dispute Resolution mechanism

FIPs to share financial information on receipt of valid consent artefact

The FIPs can only share the financial information relating to the securities market through the AA on receiving a valid consent artefact from the customer. The consent architecture is provided under Clause 6 of the RBI Master Directions.

The FIPs need to verify the following elements in the consent artefact:

1. Validity of the consent;
2. Specified dates and usage; and
3. AA’s credentials

FIPs to digitally sign and transmit the financial information

Having completed the due verification of the consent artefact, the FIPs in the securities market then digitally sign the financial information and securely transmit such information to the AA in accordance with the terms mentioned in the consent artefact.

Real-time response of the FIPs

All the responses from the FIPs in the securities market have to be made in real-time.

Measures to be taken by FIPs to enable data flows

FIPs must take the following measures in the securities market to ensure data flows:

1. Embed interfaces to enable AA to submit consent artefacts, authenticate each other and enable a secure flow of financial information to the AA;
2. Employ means to verify consent and digital signatures contained in the consent artefact;
3. To adopt means to enable digital signing of the financial information shared by them about the customers;
4. A log has to be maintained of the information sharing requests and the actions taken in pursuance of such requests

FIPs have to adopt prescribed technical measures to ensure secure data flows.  

The FIPs in the securities market must adopt the prescribed technical specifications published by the Reserve Bank Information Technology Private Limited (ReBIT) and adopt the required Information Technology (IT) framework to ensure that data flows safely and securely to the AA. Such technology should be scalable to cover any other AA as per the requirement of RBI in future. 

Further, adequate safeguards must be installed in the IT systems of FIPs in the securities market to ensure that the financial data stored in their systems do not get compromised by unauthorised access, destructions, alteration, disclosure or dissemination of records and data.

Continued compliance with SEBI Act and Depositories Act

The FIPs in the securities market shall continue to comply with the provisions under the SEBI Act, 1992^[1], Depositories Act, 1996 and the regulations framed under these regulations.

FIPs to disclose the names of the AAs on their website    

The FIPs must prominently disclose on their website the names of the AAs through whichthey share information about the assets held with respect to securities markets with the customers and FIUs. 

Application Timeline of the Circular

The directions in this Circular shall come into effect immediately, i.e. from 19th August 2022 only, and all the Depositories and AMCs through their RTAs need to comply with the above-mentioned mandate with immediate effect.  

Conclusion

This Circular on the participation of Depositories and Asset Management Companies (AMCs) as FIPs in the Account Aggregator Framework has been issued with the approval of the competent authority and has been brought after exercising the powers conferred on SEBI under sub-section 1 of section 11 of the SEBI Act, 1992 with a view to promote the development and regulate the securities market and also to protect the interests of the investors in the securities market. 

Read our Article: All you need to know about Account Aggregator System in India