Know your customer (KYC) is the documentation provisions laid down by the Reserve Bank of India (RBI) as a measure to prevent money laundering through banks and financial institutions.
According to the Prevention of Money Laundering Act, 2002, and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, regulated entities should follow the proper identification procedures for customers while conducting transactions.
Regulated entities imply scheduled commercial banks (SCBs), regional rural banks (RRBs), local area banks (LABs), co-operative banks, non-banking financial companies (NBFCs), miscellaneous and residuary non-banking companies, all India financial institutions (AIFIs), and different payment system providers.
Recently, Punjab National Bank (PNB) has asked its customers to update their KYC information for which the last date is August 31, 2023. It is as per the RBI directives to again do KYC or update the information from time to time.
Let us see what it is, and why it is required.
Why Is Re-KYC Important?
According to the RBI’s Master Direction for KYC Direction, 2016, which was latest updated on May 4, 2023, regulated entities need to update the KYC details of their customers at regular intervals.
Banks may ask all their customers maintaining accounts with them for KYC updation from time to time. For customers it is important to keep KYC information updated with the banks to ensure regular communication.
When Is Fresh KYC Documents Required?
It is mandatory for banks to update the KYC record of their customers from time to time.
However, in some cases, fresh KYC documents have to be taken, such as when the KYC documents available with the records are not the same as prescribed in the current officially valid documents (OVD) list. Also, in case the document validity is expired, the banks need to get the updated KYC documents from the customers.
Re-KYC is mandatory for minor accounts who have turned major. In this case, a fresh photo of the accountholder who has attained majority is required. Regulated entities may also ask for a fresh KYC for such accounts.
Consequences If Re-KYC Is Not Done Timely?
As this is an RBI requirement to update the information, failure to comply could lead to temporary suspension of account operations. This would mean suspension of transaction activities in the
account until the KYC is again completed. However, regulated entities are required to notify the customers before putting any restrictions on their account operations.
“If a customer having an existing account-based relationship with a regulated entity gives in writing to the regulated entity that he does not want to submit his Permanent Account Number or equivalent e-document thereof or Form No.60, regulated entity shall close the account, and all obligations due in relation to the account shall be appropriately settled after establishing the identity of the customer by obtaining the identification documents as applicable to the customer,” the RBI says.
So, it is very important to comply with the Re-KYC requirement to continue availing services with banks or other financial entities.
How Should You Do It
The board of directors of the regulated entities or any committee of the board can determine the KYC policy internally under the RBI’s laid down rules.
According to the RBI, the regulated entities should exercise Re-KYC or updation of KYC based on risk approach, which means higher KYC updation frequency for high-risk customers and lower frequency for low-risk customers.
Under the provisions, regulated entities should update KYC every two years for high-risk customers, once in eight years for medium-risk customers, and once in ten years for low-risk customers from the date of account opening or the last KYC updation.
If There Is No Change In KYC Information: If your bank is asking for Re-KYC, but there has been no change in your details, and it is all updated in the account, you only need to give a self-declaration regarding this to the RE through your registered e-mail, registered mobile number, Netbanking, mobile App, or a physical letter.
Address Change: If there is a change in address, you need to inform the bank or the regulated entities about it through the same mode (registered email, registered mobile number, physical letter, Netbanking, mobile banking, etc.). The regulated entities will get it verified within two months and update in your account.
If the regulated entities specify in their internal KYC policy to accept OVD, such as passport, driving licence, proof of possession of Aadhaar number, voter identity card, job card issued by NREGA, and letter issued by the National Population Register, or the deemed OVD, such as electricity, piped gas, water bill, telephone or post-paid mobile bill, municipal tax receipt, etc., one can submit these as address proof to get the address changed.
Customers can also use e-KYC mode for self-declaration so that there is no change in the KYC information or also even when there is a change in information.
Further, they can use a video-based customer identification process (V-CIP), if the bank offers it to complete their KYC updation requirement.
