KYC, which stands for Know Your Customer, is a form of protection for both clients and financial institutions. It is a process by which banks obtain information about the identity and address of the customers.The KYC procedure is to be completed by the banks while opening accounts and also periodically update the same.Banks and companies of all sizes have become big supporters of KYC. It is increasingly common for banking institutions, credit companies, and insurance agencies to require that their customers provide them with detailed information in order to ensure that they are not involved with corruption, bribery, or money laundering.
KYC POLICIES HAVE NOW EVOLVED INTO AN IMPORTANT TOOL TO COMBAT ILLEGAL TRANSACTIONS.
KYC DOCUMENTS WHICH IS REQUIRE TO BE SUBMITTED
KYC documents along with the customer’s photograph have been made mandatory only in the recent past where fraudulent transactions, fraud accounts and money laundering had become prevalent.
List of Documents Which is Commonly accepted as Identity Proof:
3)Voter’s Identity Card
5)Photo identity proof of Central or State government
6)Ration card with photograph
7)Letter from a recognized public authority or public servant
8)Bank Pass Book bearing photograph
9)Employee identity card of a listed company or public sector company
10)Identity card of University or board of education like ISC, CBSE, etc.
To create and run an effective KYC program requires the following elements:
1) Customer Identification Program (CIP)
The CIP is designed to limit money laundering,terrorism funding,corruption and other illlegal activities.A critical element to a successful CIP is a risk assessment, both at the institutional level and at the level of procedures for each account. While the CIP provides guidance, it’s up to the individual institution to determine the exact level of risk and policy for that risk level.
The minimum requirements to open an individual financial account are clearly delimited in the CIP:
⦁ Date of birth
⦁ Identification number
While gathering this information during account opening is sufficient, the institution must verify the identity of the account holder “within a reasonable time.” Procedures for identity verification include documents, non-documentary methods (these may include comparing the information provided by the customer with consumer reporting agencies and many more
2) Customer Due Diligence:
Customer Due Diligence is a critical element of effectively managing your risks and protecting yourself against criminals, terrorists, and Politically Exposed Persons (PEPs) who might present a risk.
CDD starts from obtaining information about the customer. The following points should be included:
2)Residential address mailing
3)Contact numbers, email addresses
4)Place of birth, date of birth
8)Government-issued identification number
9)Government-issued tax identification number
10)Occupation Specimen signature
2)Enhanced Due Diligence:
(“EDD”) is additional information collected for higher-risk customers to provide a deeper understanding of customer activity to mitigate associated risks. In the end, while some EDD factors are specifically enshrined in a country’s legislations, it’s up to a financial institution to determine their risk and take measures to ensure that their customers are not bad actors.
3)Simplified Due Diligence:
However, customers do not always pose a high risk on the organization, sometimes simplified due diligence is enough. When there is less probability that provided services or customer may become involved in money laundering or terrorist financing. Simplified due diligence is the lowest level of due diligence that can be completed on a customer.
⦁ Establishes Customer Identity.
⦁ It helps to understand the nature of customer and their activities.
⦁ Assesses money laundering Risks associated with that customer for purpose of monitering the customer's activities.
⦁ Provide protection from fraud and lossess due to illlegal funds
⦁ It is possible only for those which have aadhar numbers.
⦁ While using e-kyc service,you have to authorize the Unique Identification Authority of india(UIDAI),by explicit consent,to realese your identity/address through biometric authentication to the bank branches
⦁ After receiving the authorization,UIDAI transfer your data including your name,age,gender,and photograph electronically to the bank.
⦁ Information provided through e-kyc process is therby permitted to be treated as an "Officially valid document"under PML(Prevention of money laundering)rule and serves as a valid process for kyc verification.