KYC (Know Your Customer) is an important component in the fight against financial crime and money laundering, and customer identification is the most important aspect because it is the first step in performing better in subsequent stages of the process.
International regulations influenced by standards such as The Financial Action Task Force (FATF) are now incorporated into national laws, encompassing strong directives such as AML 4 and 5 as well as preventive measures such as "KYC" for client identification.
Since 2004, all Indian financial institutions have been required by the Reserve Bank of India to verify the identity and address of all customers who conduct financial transactions with them. As a result, the RBI mandated the KYC process as the sole mode of verification. To prevent fraud, the RBI ensured that all transactions were carried out after a careful assessment of the customer's identity and address.
KYC stands for 'know your customer,' and it is an effective way for an institution to confirm and thus verify a customer's authenticity. Before investing in various instruments, the customer must submit all KYC documentation.
The RBI requires all financial institutions to perform the KYC process for all customers before granting them the ability to conduct financial transactions. Whether the customer uses online KYC or offline KYC, the process is simple and only needs to be done once.
KYC is an important tool because it protects financial institutions and prevents illegal activities. Non-individual customers make extensive use of financial services such as trading and mutual fund investing.
Banks have the right under KYC to verify an entity's legal status, which includes cross-checking customers' operating addresses and verifying the identities of their beneficial owners and authorised signatories.
Furthermore, the KYC process requires the nature of the customer's employment as well as the business conducted by the customer, which is useful in verifying the authenticity of an individual and/or company.
KYC verification processes are classified into two types. Both are equally good, and it is simply a matter of preference whether one prefers one over the other. Both of them are as follows:
eKYC: It is also known as Aadhaar-based KYC or online KYC. This verification process is completed online, making it extremely convenient for those with a broadband or internet connection. The customer must upload a scanned copy of their original Aadhar card here. If the customer wants to invest in a mutual fund, he or she can only do so with Aadhar-based KYC up to 50,000 per year.
Offline KYC: It is also called in-person KYC. It is also known as in-person KYC. If the customer wishes to invest more in mutual funds per year, they will be required to complete an offline in-person KYC. To do so, the customer can go to a KYC kiosk and authenticate their identity using Aadhar biometrics, or they can call the KYC registration agency and have an executive come to their home/office to do so.
Any of the three methods listed below can be used to complete the KYC verification process:
1. Biometric authentication using Aadhaar
To complete online KYC verification using Aadhaar Biometric Authentication, follow the steps below:
Visit the bank's, KYC Registration Agency's, or fund house's website.
Follow the steps outlined above for online KYC.
Make a biometric authentication request.
Send in your application.
The address specified in the application form would then be visited by an executive. You would be required to provide your biometrics as well as your original documents. Your KYC application will be processed and approved once it has been verified.
2. Online OTP-based KYC
Following the steps outlined below, Aadhaar OTP-based KYC online verification can be completed:
Visit the bank's, KYC Registration Agency's, or fund house's website.
Select 'KYC verification.'
Enter the information requested from your Aadhaar card.
Authenticate with an OTP sent to the Aadhaar-registered mobile number.
Fill out and upload the application.
Following submission, your KYC application will be verified and approved by the UIDAI (Unique Identification Authority of India) and the KRA. You can check the status by going to the KRA website and entering your PAN number.
3. Offline verification
KYC verification can also be completed offline by following the steps outlined below:
Download the KYC form from the bank's, KYC Registration Agency's, or fund house's website.
Fill out the form with your Aadhaar card and PAN information.
As proof of identity and address, provide a copy of any of the listed KYC documents.
Visit a bank, KYC Registration Agency, or investment firm.
Submit the application to a manager.
You may be asked to provide biometric information.
After submitting the KYC application, you will be assigned an application number. This number can be used to check the status of your KYC verification.
eKYC (Electronic KYC) is a digital customer KYC verification procedure in which the identifying details of a customer seeking services from a regulated business are electronically verified.
This is required for anyone who wishes to use the services of a financial institution. This instantly provides your proof of identity and address to the service provider, eliminating the need for time-consuming in-person verification.
eKYC is primarily concerned with KYC verification via the UIDAI (Unique Identification Authority of India) database and is entirely paperless, requiring no physical documentation.
The only requirement for eKYC is that you have a 12-digit Aadhaar number. Customers only need this, along with a registered mobile number (in most cases), to complete KYC procedures.
The types of eKYC are listed below:
1. Using Biometrics: In this case, you must provide your 12-digit Aadhaar number as well as biometrics such as fingerprints or an iris scan, and if you are interested in investing, the relevant authority in the fund house will complete the verification process using this method.
2. Using OTP: In this case, you must enter your Aadhaar number, and an OTP will be sent to your registered mobile phone, completing the transaction process.eKYC process
Aadhaar-based eKYC is based on the information provided by an individual to UIDAI in order to obtain the unique 12-digit Aadhaar number. After receiving your Aadhaar number, it is simple to invest in fund houses because they use the eKYC Application Programming Interface (API) to access your Aadhar information. Any licensed service provider can then use this to verify a customer.
Regulation on eKYC
You can easily complete your KYC online registration by submitting an application to any of the SEBI-licensed KRA's web portals. They are as follows:
1. DotEx International Limited (DotEx)
2. CDSL Ventures Ltd (CVL)
3. Karvy Data Management Services Limited (KDMS)
4. NSDL Database Management Limited (NDML)
5. CAMS Investor Services Private Limited
Step 1: After creating an account on any KRA's eKYC portal, you must enter your personal information, such as your Aadhaar card number, as well as your registered phone number, to which you will receive an OTP.
Step 2: Following verification, you must provide a copy of your self-attested Aadhaar card.
Step 3: After that, you can check your status by entering your PAN number into the KRA's web portal.
Digital KYC records can be updated by visiting the eKYC portal of your choice, such as any KRA, and clicking on the 'Update KYC' link.
Step 1: Fill in the new information and upload a scanned copy of the updated documents to establish proof of the changes, and you will receive an OTP on your registered mobile phone number.
Step 2: After verification, click submit, and the details will be changed within a week.
The following offline methods can be used to verify the customer's identity:
1. QR Code Scan: The service provider can use a smartphone to scan the QR code on your Aadhaar card to gain access to demographic information without having to access UIDAI's Aadhaar database.
2. mAadhaar App: This is a mobile-based Open Demat Account App that provides access to demographic data to service providers.
3. Paperless offline KYC: Instead of providing a photocopy of the Aadhaar card, a customer can download the KYC XML from UIDAI's web portal. This process eliminates the need to reveal an Aadhaar number (instead, a reference ID is shared) and eliminates the need for biometric verification.
You will need to provide certain documents as proof to complete the KYC verification procedure. There are generally two types of KYC documents accepted as proof. These are some examples:
1. Proof of Identity: This set of documents is required for KYC verification to establish an individual's identity. This may include -
Voter ID card
Photo ID issued by Central or State Government/University/Public Sector Undertakings/Public Financial Institutions/Commercial Banks
2. Proof of Address: This KYC document type is intended to serve as proof of an individual's place of residence. This may include
Voter ID card
Agreement for lease or sale of property
Utility bills (only of the last 3 months)
3. Proof of Income: This KYC document proves your regular income and assists banks/financial institutions in determining your credit card limit. This may include
Bank account statement
Salary slips (of the last 3 months)
ITR filing documents (of the last 2 years)
In some cases, the documents needed for bank KYC may overlap and serve as both proofs of identity and proof of address.
Following are the benefits of KYC:
Aids you in efficiently accessing and assessing the client's past financial history in terms of assets and liabilities, allowing you to perform an accurate risk assessment.
Allows you to effectively reduce your exposure to fraud by accurately verifying the client's identity claim.
Prevents you from participating in terrorism or money laundering activities without your knowledge or consent.
Reduces the overall risk of your lending portfolio, contributing to higher profit margins.
KYC is fundamentally required if a customer wishes to conduct any type of financial transaction. Following the verification process, the customer provides information about their identity, address, and financial history to the financial institution that conducted the test. This can help the bank determine that the money invested by the customer is not being used for money laundering purposes.
KYC performed by designated KYC Registration Agencies (KRA) is a secure and painless process.
There is no fee for KYC. It is completely free.
You can check your KYC status on the application portal by entering your application number or PAN card number.
KYC verification is done by biometric authentication, via an OTP, or through an offline method. Check the section ‘KYC verification’ above for details.
You can update your details by going to any of the eKYC portals. For more details, check the ‘Changing eKYC details’ section.
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