SEBI has vide its circular dated 30th September 2022 authorised the two factor authentication for subscription to the units of mutual funds as well. Earlier it was adopted for redemption transaction for the units of mutual funds. The operative part of the SEBI circular reads as follows:
In order to further safeguard interest of investors, it has now been decided to extend the Two-Factor Authentication for subscription transactions in the units of Mutual Funds as well. Accordingly, Clause 4.4 of the SEBI Circular dated October 4, 2021, as modified vide the SEBI Circular No. dated March 15, 2022, stands further modified as under:
“4.4. In case of subscription and redemption of units, Two-Factor Authentication (for online transactions) and signature method (for offline transactions) shall be used for authentication. One of the Factors for such Two-Factor Authentication for non-demat transaction shall be a One-Time Password sent to the unit holder at his/her email/ phone number registered with the AMC/RTA. In case of demat transaction, process of Two-Factor authentication as laid down by the Depositories shall be followed. It is also clarified that in case of mandates/systematic transactions the requirement of Two-Factor Authentication shall be applicable only at the time of registration of mandate/ systematic transactions.”
SEBI further advises AMFI’s (Association of Mutual Funds of India – a self regulatory body, which is a useless body in my view) best practice guidelines issued for AMCs with regard to Two-Factor authentication for redemption transactions of Mutual Funds shall be revised suitably to include subscription transactions of Mutual Funds. It shall be mandatory for all AMCs to follow such guidelines.
These provisions, however shall become applicable only with effect from April 01, 2023.
SEBI has advised the AMCs, AMFI, recognized Stock Exchanges, Depositories, recognized Clearing
Corporations and Registrar to an Issue and Share Transfer Agents to take necessary steps for implementing the circular, including putting required processes and systems in place to ensure compliance with the provisions of this circular.
Also, AMFI shall be required to furnish by October 14, 2022, the activity wise schedule for implementation so as to ensure compliance with these issues and to furnish progress report on implementation of provisions of this circular to SEBI on a bi-monthly basis, starting from December 01, 2022.