Demat Account – Two-Factor Authorization: We live in an increasingly virtual world with everything we use from banking to emails to investing to shopping – right at our fingertips at the click of a button. This convenience is one of the biggest blessings of the virtual age, but every convenience brings problems and threats related to it too.
It is becoming prudent to address those issues and protect from online hacking and financial frauds. This makes two-factor authentication a process with which you are quite familiar. From emails to bank accounts, everything requires two-factor authentication. Such authentication reduces the risks of losing your assets to online fraudsters. That’s why the NSE introduced compulsory two-factor authentication for Demat accounts.
What is Demat account?
Demat Accounts are accounts that hold your shares and securities in a dematerialised account or in their virtual form to make the trading of securities quick and seamless. Like the way your bank account holds your cash in a virtual or non-physical form, the Demat account stores your shares and securities in electronic form. You can check the number of shares you own in your Demat account, and any share purchase or sale of shares is credited to your Demat account.
With more people realizing the importance of building wealth via investing, the number of people who invest in securities has increased exponentially. It means more people are investing their hard-earned money in shares, mutual funds, government bonds and other securities. Long-term share purchases are saved in your Demat account. Doing so takes away the hassle of maintaining and handling shares in paper form. NSDL and CDSL are the depository participants linked to all Demat accounts.
How important is the security of your Demat account?
Demat accounts hold your investments in shares and securities in virtual form. It is a huge repository of your wealth, so, protecting it is must. Not only does it hold your securities in dematerialized form, but the account also connects to a trading account that lets you trade in securities and a bank account that allows the flow of funds as required. With so many linked accounts – security is a crucial factor.
Earlier Demat accounts required a password to conduct transactions. However, on June 14, 2022, the National Stock Exchange (NSE) issued a circular stating all Demat account holders must compulsorily activate two-factor authentication on their Demat accounts by Sept 30, 2022.
It means that from October 1, 2022, Demat holders who have not activated the two-factor authentication would not be able to operate their accounts till they complete the two-factor authentication process.
Explanation of the two-factor authentication process
SEBI (Securities and Exchange Board of India) circular SEBI/HO/MIRSD/CIR/PB/2018/147 dated December 03, 2018, on Cyber Security & Cyber Resilience framework for Stockbrokers, wherein all Members had to mandatorily implement two-factor authentication on applications Members offered to customers through Internet Based Trading (IBT) and Securities Trading through Wireless Technology (STW).
In compliance with this the NSE has released circular number 36/2022 stating “In joint consultation with SEBI and Exchanges it is hereby clarified that in addition to user ID, Members shall preferably use biometric authentication as one of the authentication factors, along with any one of the below-mentioned factors:
1. Knowledge factor something only the user knows like a Password or PIN.
2. Possession factor something only the user has like an OTP, security token, authenticator apps on smartphones, etc.
An OTP must be sent to clients via email and SMS on their registered email ID and Mobile number. If biometric authentication is not possible, members must use the Knowledge and Possession factor and the user ID, for 2-factor authentication (2FA). The authentication will be applied on every IBT and STWT login session. (see NSE circular)
How to enable two-factor authentication in your Demat account
Enabling the two-factor authorization in your Demat account is easy. You can access your Demat service provider via web portals and mobile apps.
7 steps you can perform to enable the two-factor authentication on your Demat account.
Step 1: Access the web portal or mobile application that you use to access your Demat account.
Step 2: Sign in and Go to your Profile
Step 3: Go to Password Option / Security Option
Step 4: Press Select on two-factor authentication
Step 6: You will receive a one-time password (OTP) on your mobile and registered email.
Step 7: You must enter the OTP on the Demat account site. The site or the App may ask you to enter your fingerprint or scan a QR code as well.
Complete the steps and you have successfully managed your two-factor authentication on your Demat account. Different platforms may have slightly varying methods to enable two-factor authentication. Be sure to follow the instructions exactly to complete the process most simply and seamlessly as possible.
As taxing as we may sometimes find the mandated structures and requirements laid down by the regulatory authorities, it is helpful to know that at the end of the day it is the consumers who will benefit from the increased security and safety. So, if you must bear a little inconvenience for improved safety, it may just be a price worth doing.
FAQ
What is the two factor authentication?
Two-factor authentication refers to a two-step process – which creates a safety net at two levels before anyone can access the account. The authentication process may involve either biometrics or in the absence of biometrics, it will involve passwords that involve either the Knowledge factor or the Possession factor.
From when has two-factor authentication become mandatory?
Two-factor authentication has become mandatory from October 1, 2022. If two-factor authorization is not enabled Demat accounts will not be usable till the authentication is complete.
What is an OTP?
OTP – stands for one-time password – a computer generates and sends to the user’s registered mobile number or registered email id.
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