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KYC GUIDELINES

Updated: Jun 16

Written By: Tanushree Jaiswal, University of Allahabad

INTRODUCTION:

The Reserve Bank of India (RBI) has issued regulatory guidelines on "Know Your Customer (KYC)" norms/ Anti Money Laundering (AML) Standards/ Combating of Financing of Terrorism (CFT) from time to time.

-These are the guidelines issued by Reserve Bank of India (RBI).

-These were introduced on 29th November 2004.

-It is an anti- money laundering measure.

-It is applicable for all the Banks.

-All the banks are required to have a comprehensive policy regarding these standards.

OBJECTIVE:

The objective of KYC guidelines is to prevent businesses from being used by criminal elements for money laundering.

-To prevent the banks from being used in money laundering activities intentionally or unintentionally.

-To enable the banks to know & understand their customers to enable them to understand the Financial dealings with the customers, so as to manage the risk prudently.

KYC Policies incorporating the following Four key Elements:

1) Customer Acceptance Policy;

2) Customer Identification Procedures;

3) Monitoring of Transactions, and

4) Risk Management

APPLICATION OF KYC:

1) Opening a new account.

2) Opening a subsequent account, if the documents regarding KYC were not submitted earlier.

3) Opening a locker facility if the bank is not having the required documents.

4) Obtaining additional information on special & suspicious conduct of the account.

5) At the time of changes in signatories, beneficial owners etc.

KYC is Mandatory:

KYC or Know Your Customer is an essential term used by corporate firms. This process is the building block for the verification of the Customer's identity.

Nowadays, because of Security concerns, RBI made KYC is COMPULSORY for the Banks and Financial Institutions.

As per RBI guidelines, KYC is Mandatory for using 'Wallet Services'.

With minimum KYC details, you can add Money and Spend from Wallet for Merchant Payments.

KYC DOCUMENTS (Individuals):

1) Passport

2) Voter's Identity Card

3) Driving License

4) Aadhaar Letter/ Card

5) NREGA Card

6) PAN Card

CONCLUSION:

Know Your Customer combines through initial work and ongoing due diligence to hopefully decrease Financial Institutions' risk to illcit activities and Fraud.

Today KYC (Know Your Customer) is a important element in the fight against Financial Crimes.

In Money Laundering cases where it is not only difficult to detect but also hard to find out the Person. The most critical aspect is the Customer Identification. As it is the First step to better perform in the other stages of the process.

KYC CHECK:

KYC is mandatory process of identifying and verifying the Identity of the Client when opening an account for the First time and periodically over time.

Now these days, Banks must be sure that their clients are Genuinely who they claim to be.

Banks may refuse to open an account if the client fails to meet minimum KYC requirements.

Procedure of KYC:

This Know Your Customer (KYC) procedures defined by Banks involves all the necessary actions to make sure that their customers are REAL, ASSESS, and MONITOR RISKS. Thus KYC process helps the banks to prevent and identify:

1. Money Laundering,

2. Terrorism Financing, and

3. Other illegal Corruption

The KYC- Know Your Customer process includes-:

1. ID Card verification,

2. Face verification,

3. Document verification

(Such as proof of address and biometric verification etc.)

NEW eKYC:

In India, Electronic Know Your Customer or (eKYC) is a process, wherein the Customer's identity and address are verified Electronically through-

"Aadhaar authentication".

Aadhaar is India's National Biometric eID Scheme.

Reason for Popularity of eKYC in India: This is because " India's 99 % of the Adult Population has a Digital Identity in the Country. In May 2020, 1257 Billion residents got their Aadhaar Number ".

eKYC also refers to the capture of information from IDs (OCR mode), the extraction of digital data from Government issued smart IDs (with a chip) with a physical presence, or the use of certified digital identifies and facial recognition for online identity verification.

"Customer onboarding can then be done via. MOBILE. eKYC is considered more and more feasible as its accuracy is improving by utilizing Artificial Intelligence AI ".

Aadhaar Paperless Offline eKYC

Aadhaar Paperless Offline eKYC is a secure and shareable document which can be used by any Aadhaar holder for Offline verification of identification.

After entering Aadhaar/ VID, create a Share code of 4 characters. A Zip file containing the Resident’s Paperless Offline eKYC will be password protected using the same Share Code. The file will be downloaded into the Resident's device/ desktop.

To avail the service the Resident will have to share the Zip file, the Share Code and registered Mobile number with the service provider.

Thus, The Reserve Bank of India, the Apex Bank of the Nation has made KYC compulsory for the Banks and Financial Institutions.


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