Know Your Customer (KYC) Guidelines & Checklist

Know Your Customer (KYC)

KYC stands for Know Your Customer. It is the procedure to verify the customers who come with fund management features such as deposit, trade and withdrawals. The KYC guidelines have put in place by the Reserve Bank of India in the context of the   recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT). 

The main objective of KYC is to prevent the banks from criminal elements like money laundering. Therefore, it checks on the legality of funds used for investment. KYC checks if the deposits or investments are made by the real person. Moreover, it is helpful to curb black money. 

Now a days, it has become a globally controversial topic because it acts as an important tool to combat illegal transactions in the finance field. We are familiar with the term Identity Theft. So can you hire a fraud in your company without verifying him? Don’t worry because KYC guides you on how to detect a fictitious person? We are here to tell you the importance and procedure of KYC. Along with that we acquaint to with the required documents for KYC.  

What is the KYC Procedure?

  • OFFLINE: Firstly, you need to download the KYC application form from a government website. Secondly, sign and submit the application form to the specified authorities after filling it carefully. Thirdly, you must attach the photocopies of ID Proof, Residence Proof and Passport size photographs along with the form.
  • ONLINE: Create your account on the official website of KRA. Then fill in your personal details with your registered mobile number and Aadhaar Card number. After this verify the OTP (One Time Password). In the end you just need to upload the self- attested copy e- Aadhaar.
  • AADHAAR- BASED BIOMETRIC: If you have your Aadhaar Card then you can opt for Aadhaar Based KYC. Under this you request the fund house or agency to visit your home in order to collect the details. You have to submit a copy of your Aadhaar Card and they will trace your fingerprints to their scanner. The traced fingerprints are linked to the Aadhaar Database. After the procedure your details will pop up. This means that they have validated your KYC before proceeding with your mutual fund investment.

Why KYC is mandatory?

KYC is mandatory because it helps the bankers or lenders or company owners to recognize what is real. It makes the things easier for them because there have been various instances of fraud and siphoning off of money from accounts. Without KYC it becomes hard to detect the false person who can even have negative intentions to dissolve the company or business.

No one can escape the paperwork because duplication of documents in some cases is possible. Moreover, KYC acts as a client identification program to maintain the records of the customers. For the fact KYC norms has been introduced by RBI in 2002. Its main motive was to direct all the banks and financial institutions to examine their customers before opening their accounts. But now it has become mandatory for other regulators as well. For an instance, the Security and exchange Board of India (SEBI) demands KYC for mutual funds. Insurance Regulatory Development Authority also demands KYC for insurance.

Important documents which are mandatory to show are:

  • PROOF OF IDENTITY: The Government of India has verified 6 documents which have to be submitted as a Proof of Identity. One important document that makes life easier is your Aadhaar Card. It is the unique identification number which is provided to each citizen by Unique Identification Authority of India (UIDAI). Besides this your PAN Card, Voter’s Identity Card, Driving License, National Rural Employment Guarantee Act (NREGA) Card and Passport. Moreover, 
  • ADDRESS PROOF: For Address proof you need to show your utility bills such as your telephone bill, electricity bill and gas bill. Along with that passport and bank account statement received by mail with signature verification by the Banker. However, most of the banks and other financial institutions ask people to self- attest before submitting the required documents. Moreover, they should be accompanied by the original documents for verification. If needed it should be property attested by entities authorized for attesting documents.

These given documents of an account holder have been verified carefully. The procedure of this verification includes documents and non- documentary methods.

What is Video KYC?

  • Video KYC requires an investor who updates the personal details of an individual and uploads his identity proof such as PAN card, address proof, photograph, a cancelled cheque, and signatures on the AMC’s website. After uploading all documents, the investor is required to start real-time video recording using the front camera on his/her smartphone or computer and display a hard copy of all the documents for five seconds each. Investors have to say ‘Hi’ followed by the investor’s name at the end of the video recording. 
  • However, according to Micro, Small and Medium Enterprise (MSME) Video KYC requires the electronic methods to verify or examine the customers. These electronic devices are important to maintain the records for that matter.
  • Reserve Bank of India (RBI) has decided to release the guidelines of Video KYC for banks and other financial institutions. 
  • Although, some of the banks and other lending institutions have already started preparing for the implementation of video KYC guidelines. The process is useful for multiple products

What is Aadhaar KYC?

Sometimes we require a KYC when we want to open a bank account or invest mutual funds. Here Aadhaar Card KYC is the easiest way to solve all the problems because the procedure is quite fast. You just require Aadhaar Card Number to verify all your identity. You don’t need to require multiple documents, various photocopy and self- attached copies. As you will get a volunteer who will assist you in every stage of the procedure. Generally, Biometric procedure is used by Aadhaar KYC where the volunteer scan your fingerprints which are used to access your Aadhaar Card and verify your personal information. There are various advantages when you choose Aadhaar Card KYC:

  • PAPERLESS: one of the utmost advantages Aadhaar KYC is that it requires no paperwork and bestows you a service provider or volunteer to manage the documents with ease and with efficiency.
  • SECURE: It is a very secure procedure. UIDAI only shares tamper-proof digital documents through a secure channel. This helps protect the identity of the holder. Hence, there is no possibility of getting the documents forged.
  • CONSENT- BASED: Your personal information will be shared by the service provider with you give consent in the form of an OTP acknowledgment or through a biometric.
  • COST- EFFICIENT: The system of e-KYC is paperless and online. It eliminates the physical movement of information and makes it a cost-effective process.

What is Electronic KYC?

  • Several companies and institutions such as ICICI, Kotak Mahindra, Mutual Funds, Vodafone, Telenor, etc. have already employed the use of E-KYC. These companies saw the effective utilisation of eKYC to validate a customer’s identity and activate their respective Sim cards within 5 to 30 minutes. 
  • Moreover, the entire process can be done online. The procedure doesn’t require paper work. Electronic KYC is legally equivalent to that of a paper document because any transfer of data is secured through the use of digital signature and encryption as per the Information Technology Act, 2000.
  • Again, it is a consent based procedure. if you give your authorisation only then anyone can see your personal information.
  • The process of service delivery is completely automated without the need for any manual interference. The KYC data is furnished in real-time and everything is uploaded.

Benefits of KYC

  • KYC makes sure that all monetary transactions in which one institutional unit makes a payment or incurs a liability stated in units of currency are legitimate and transparent.
  • It assist government or companies to fight against criminal activities such as money laundering, bribery, fraud, black money etc. Therefore, it may help to save the reputation of companies. 
  • As it is transparent in nature it helps in avoiding reputational, tax and legal discrepancies or problems. At the same time it works towards stopping con artists and scammers from stealing money. For the fact KYC has successfully established the credibility of the customer. 
  • KYC also serves as good news for investors and their assets. If you have got your KYC done, be rest assured that no one else apart from you can access your assets and exploit it. Since the concerning, authority already has all your necessary details; it can be difficult to get to them through any illegal means.
  • KYC has now become mandatory according to the guidelines from the Securities and Exchange Board of India to comply with these KYC norms before you open a trading account. Banks too support this decision and they do not open an account unless you have the same.

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