Know Your Customer – Everything You Should Know About KYC

Know Your Customer (KYC) is a commonly used term for the customer identification process. It is a process by which a financial institution or a Bank identifies and verifies the identity of its clients. The bank insists on documents for customer identification and his address proof. It is an obligation on the banks by RBI to have all the customer data regarding the customer identity, source of funds, nature of customer’s business, and justness of operations in the accounts that enable the bank to manage the risk associated with its customer effectively.

When was the KYC Guidelines Introduced?

In the year 2002, RBI introduced the KYC guidelines under section 35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention of Money-laundering rules, 2005 (Amended). RBI ordered all the banks to make the customer accounts KYC compliant by 31st December 2005. Financial Action Task Force (FATF) made the recommendations on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism for the guidelines.

Why do the banks need KYC?

Banks implement KYC norms to safeguard the bank from being intentionally or unintentionally being used for money laundering or other nefarious activities. Hence the main objectives of KYC norms are

• To stop the laundering of money
• To stop any possibility of terrorist financing
• To have a complete understanding of the customers and any risk associated with them
• To avoid any suspicious or fake customer accounts

Who needs KYC?

Those who are looking to open a bank account, a Demat account, stock trading account or FD account need to comply with the KYC norms

What are the documents required for KYC Compliance?

The list of documents required for identity proof and address is:

• Passport
• Aadhar card issued by UIDAI
• Voter’s Identity Card
• PAN card
• Driving License
• Job card issued by NREGA which is duly signed by the State Government Officer
• National Population Register issued letter containing name and address details

The above Seven documents have been notified as Officially Valid Documents (OVDs) by the Government of India as proofs of identity Read Also: What Are The KYC Documents Required For Business Loans?

What is KYC Policy?

There are four critical elements of the KYC Policy:

• Customer Acceptance Policy (CAP) –  Classification of  customers are into three risk categories (High, Medium, Low)
• Customer Identification Procedure (CIP) – Client Due Diligence (CDD) measures taken to identify and verify the customers and beneficial owners based on one of the OVDs
• Monitoring of Transactions –  Due diligence is done on every customer and close examination to check the consistency in the transactions concerning the customers’ profile and source of funds
• Risk Management – Management of customer and counterparty risks that are operational, legal, reputational and concentrated

What is the benefit of KYC Policy?

• It establishes the credibility of the customer through the identity proof documents shared by him/her
• It ensures that all the monetary transactions conducted from the customer’s account are legitimate
• It is a strong defence against criminal activities like money laundering, circulation of black money, terror finance, fraud, bribe, etc.
• Safeguards the authority of the customer as he is the only person who has access to his assets
• Avoid tax, legal or reputational issues
• Stops scammers from stealing money

What are the different types of KYC?

There are two types of KYC – Aadhar based KYC and In-Person verification (IPV) KYC (In Mutual funds)

• Aadhar based KYC – the customer is allowed to invest up to Rs 50,000 every financial year per fund
• In-Person Verification (IPV) KYC – the customer has to visit a fund house office or KYC kiosk for in-person verification or authenticate using Aadhar biometrics where the employee from KRA visits the customer house or office

How to do KYC?

There are three ways to do KYC – Online, Aadhar Based Biometric Authentification and through Offline mode

Online – E – KYC	Aadhar Based Biometric Authentification	Offline
Visit website of any KYC Registration Agency	Visit the website of any KRA	Download and fill the KYC form
Enter your Aadhar card details	Perform online KYC process	Mention your Aadhar and PAN card details
Verify the account using the OTP sent to the mobile number registered with Aadhar number	Request for Biometric authentication online	Visit KRA office and submit the application
Submit your application	An executive from the agency visits the address mentioned in the form	Attach the identity and address proof with the application
Once verified with UIDAI, the KRA approves your KYC	Show him the original documents with the Biometrics	In some cases, you have to submit your Biometrics
You can check your KYC status by visiting the KRA portal using your PAN number	Your application will be submitted	You will get an application number to check the KYC status
		It may take up to seven days for the application to be approved

Are there any other companies where KYC is required?

Nowadays, E-commerce payment platforms such as Paytm, PhonePe are getting very popular for online payments of goods and services. To transfer money from the wallet to the user bank account, it is compulsory to do KYC mentioned in RBI guidelines. For KYC, the documents include photo id proofs, proof of residence, and evidence for signature which is available in Aadhar card. Hence through Aadhar card one can verify his details E – KYC process of these payment platforms through their apps are very easy. For minimum KYC for PayTm App, the steps are

• User has to login to the App
• Select a government ID to proceed
• Minimum KYC wallet gets activated

For Full KYC, the steps are

• Upgrade account and unlock benefits
• Customer has three options to select – Aadhar verification with OTP or  Aadhar verification at the nearby KYC point or Aadhar verification at your doorstep

There are few benefits of doing Full KYC

• There is no transaction limit and the balance limit also increases
• Validity of the account increases for a longer period
• Direct transfer of money into other person’s or entity bank’s account

How to update EPFO KYC for both employers and employees?

It is a compulsory mandate by the government for all the employers and the employees to update their EPFO KYC. Updating KYC provides various benefits like low TDS on withdrawals, easy to operate accounts, etc. It is very easy to update the EPFO KYC details for both employees and employers and can be done in few steps: Also Read: UAN Number: How to Check, Generate, Link, and Activate UAN Number EPFO KYC updates for Employers

• Visit EPFO website and enter the login credentials
• Go to the Member section and click on KYC – Bulk from the drop down option
• Upload the KYC file and click on the Submit

EPFO KYC updates for Employees

• Visit EPFO website and enter the login credentials
• Go to the Manage and click on the KYC from the drop down
• KYC detail form will open, update it click the save so that the data gets saved in Pending KYC section
• Once the detail matches, verified is marked for the document

Those people who are not KYC compliant are unable to open the bank account, or they cannot continue to operate the bank account if they have not updated their KYC on time. People should timely update their KYC if there is any change like change in address by providing additional documents such as utility bill, Municipal or property tax receipt, etc. KYC Implementation has strengthened the financial institutions against the criminal and anti-national activities, done to injure the dignity of our country.