Your Know-Your-Customer (KYC) details are a must, whether you are opening a bank account, investing in a mutual fund, or purchasing a life insurance policy. However, it's not just a one-time task; in certain cases. you may need to update your KYC documents multiple times. For many people, this process can seem like a hassle. To simplify and streamline this process, the Financial Stability and Development Council (FSDC) has proposed implementing a uniform KYC system to verify customers across the financial sector.
During recent meetings, the Financial Stability and Development Council (FSDC), led by Finance Minister Nirmala Sitharaman, proposed implementing uniform KYC to verify customers, simplify the digitalization of the KYC process, and facilitate the sharing of KYC records across the financial sector. “A uniform KYC system aims to allow customer verification at a single point, reduce paperwork, eliminate the need to undergo the KYC process at every step of customer onboarding, and ease interoperability of the KYC data across the financial intermediaries, including banks, mutual funds, and insurance houses,” Shilpa Mankar Ahluwalia, Partner, Head-Fintech, Shardul Amarchand Mangaldas & Co said.
At present, a customer is required to undergo KYC verification and submit KYC documents each time they set up an account with a financial service provider offering a regulated financial product such as banking, securities, or insurance. The customer is also required to update each such set of KYC data maintained with different financial service providers.
Central KYC Records Registry (“CKYCRR”), established in 2016, is a centralized repository of KYC records for the securities market which already operates a uniform KYC, allowing for interoperability of KYC data. CKYCRR was introduced as a solution for regulators and troublesome submission of KYC documents while investing in securities. “Within the securities market, once an investor submits KYC documents through a registered intermediary, such as a stockbroker, depository participant, or a mutual fund entity, the investor need not undergo the KYC process again for any additional investments in the securities market. Currently, this service of CKYCRR is restricted only to the securities markets and the KYC data collected cannot be used for opening a bank account, for instance,” Mankar said.
“This lack of interoperability between different financial intermediaries is what the government aims to rectify. The plan is to make the CKYCRR accessible to and interoperable among all reporting entities (REs) across the four major regulators of the financial sector: Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority of India (Irdai), and Pension Fund Regulatory and Development Authority (PFRDA),” Mankar said.
What Will Change In KYC Norms? To give effect to the government’s proposal of a standardized implementation of a one-time KYC procedure, customers need to submit KYC documents with anyone RE at the time of opening an account. Once the registration of the KYC data is completed with the RE and the CKYCRR, the customer shall be provided with a 14-digit unique centralized KYC (“CKYC”) identifier, linked to the ID proof of the customer. Going forward, if such a customer intends to open an account with any other RE, the KYC process may be completed simply by submitting this 14-digit unique CKYC identifier, through which the RE can retrieve required the KYC data from CKYCR at the back end. This will significantly reduce the time and costs of customer onboarding and KYC processes and will also facilitate an end-to-end digital KYC customer journey.
“A uniform KYC will make the KYC process much simpler and hassle-free for customers. There will be no need to undergo KYC verification each time a customer opens an account with a financial intermediary. This proposal saves time, streamlines the process, and strengthens the privacy and safety of KYC documents. It will allow for the digitization of KYC processes and improve the accuracy of identity and KYC checks, also reducing the scope for fraud,” Mankar said.
