In this post, we will study about Know Your Customer (KYC) Guidelines. You must have heard this term in banks, where they ask you for KYC documents. Let’s study this in bit detail from the examination point of view.
Know Your Customer (KYC) Guidelines
The Reserve Bank of India has issued the Know Your Customer (KYC) Guidelines that must be followed by banks (other entities regulated by RBI). Under this, banks are required to follow certain customer identification procedures while undertaking a transaction on behalf of the customer and monitor their transactions. The purpose of KYC is to keep a watch over and prevent Money-Laundering.
Officially Valid Document (OVD)
A bank will consider the account of a customer KYC Complaint when the customer submits “Officially Valid Document” (OVD). A list of OVD as listed by RBI is mentioned below:
- Passport
- Driving License
- Aadhaar number (Aadhaar Card)
- Voter’s Identity Card issued by the ECI
- Job card issued by NREGA duly signed by an officer of the State Government
- Letter issued by the National Population Register containing details of name and address.
“Central KYC Records Registry” (CKYCR)
Central KYC Records Registry is an entity that is authorized by Government to receive, store, safeguard and retrieve the KYC records in the digital form of a customer. It is a centralized repository of KYC records of customers in the financial sector with uniform KYC norms. Banks upload the KYC data of heir customers to CYKCR.
Who performs the work of CKYCR in India?- CERSAI
Government of India has authorised the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), to act as, and to perform the functions of the CKYCR.
CKYCR assigns a unique number or code to each customer. This unique code/number is known as Know Your Client (KYC) Identifier.
Digital KYC
Digital KYC comes into play when where offline verification of a customer cannot be carried out.
“Digital KYC” means the capturing live photo of the customer and officially valid document or the proof of possession of Aadhaar. Along with this the latitude and longitude of the location where such live photo is being taken by an authorised officer is also captured.
Customer Due Diligence (CDD)– means identifying and verifying the customer and the beneficial owner.
Video-based Customer Identification Process (V-CIP)
RBI has recently introduced Video based KYC known as V-CIP.
It is a method of customer identification under which an official of the banks (any other entity who is doing KYC of its customer) undertakes:
- secure, seamless, real-time consent-based audio-visual interaction with the customer
- and in this audio-video interaction, the official obtains identification information including the documents required for CDD purpose,
- and also ascertains the veracity of the information furnished by the customer.
Shell bank– means a bank which is incorporated in a country where it has no physical presence and is unaffiliated to any regulated financial group.
Entitites that have to comply to KYC Guidelines
Here is a list of entities that are required to comply to the KYC Guidelines of RBI:
- Banks- Scheduled Commercial Banks (SCBs)/ Regional Rural Banks (RRBs)/ Local Area Banks (LABs)/ All Primary (Urban) Co-operative Banks (UCBs) /State and Central Co-operative Banks (StCBs / CCBs)
- All India Financial Institutions (AIFIs)
- All Non-Banking Finance Companies (NBFCs), Miscellaneous Non-Banking Companies (MNBCs) and Residuary Non-Banking Companies (RNBCs).
- All Payment System Providers (PSPs)/ System Participants (SPs) and Prepaid Payment Instrument Issuers (PPI Issuers)
- All authorised persons (APs) including those who are agents of Money Transfer Service Scheme (MTSS), regulated by the Regulator.
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