KYC or Know Your Customer/Client is a process of verifying a customer’s identity. This identity verification helps assess the risks involved before commencing a business relationship.
Nowadays, many countries have implemented KYC standards as a regulatory requirement of financial institutions (FIs) and corporations. Institutions like investment companies and asset managers, mutual fund companies, stock brokerage companies, etc. must do it mandatorily.
Introducing KYC is to protect these FIs and corporates against fraud and money laundering activities as described in the Anti-Money Laundering policies. Further, it also helps corporates strengthen their risk management.
As a regulatory requirement in India, the following are a few documents that can be submitted for KYC as Proof of Identity/Address. The most common documents for identification are:
- Government-issued identity documents like Aadhaar, PAN, Passport, Driving License, and Voter’s ID.
- Utility Bills like telephone, gas, and electricity for address proof. (Bills that are not more than 3 months old)
- Other documents (like proof of employment, pay slips, bank statements, property documents, etc., depending on the kind of transaction)
Generally, documents collected depend on the type of financial activity. Proof of identity and address is required for all kinds of KYC.
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Different types of KYC in India
Online KYC (eKYC) or the Aadhaar Based
Aadhaar-based KYC means that the details provided while obtaining Aadhaar are used to verify identity in KYC. KYC application can be taken from KRA (KYC Registration Agency).
After filling in details like name, address, and phone number, details of Aadhaar needs to be entered. This can simply be done by providing the Aadhaar card number and the mobile number linked to Aadhaar.
A One Time Password (OTP) will be generated in the registered mobile number, and after submitting the application, the Aadhaar verification will be complete.
Users can also request biometric verification. There are other ways of providing KYC in the online method. For example, a digital KYC involves a live photograph being uploaded along with other KYC documents being scanned. A video KYC is where a video is recorded and submitted for verification.
Offline KYC or the In-Person Verification
The offline process requires a physical copy of the KYC application to be filled in with details as required. While submitting the application, attested photocopies of proofs have to be attached along with passport-size photographs.
Sometimes, offline KYC requires Aadhaar Paperless Offline e-document to be downloaded from UIDAI and submitted. This document contains a time and date stamp of the time and date of download from the UIDAI website.
Conclusion
KYC is a small initiative towards risk management of fraud and illegal activities of the customers. It also helps corporates and FIs to remain attentive to the type of customers they have been dealing with or intend to deal with.
Despite KYC being an additional regulatory requirement, it is a necessary check for any business transaction between an two parties. Therefore, this is the reason why many non-mandated corporates have also undertaken this process as a good risk management practice.
Some FAQs about KYC
- Are KYCs expensive?
Currently, KYC does not require businesses to charge anything from customers, hence free of cost.
- What is the impact if requested documents are refused to be provided for KYC requirements?
Suppose required documents are not provided for KYC. In that case, the requested business transaction cannot be initiated, whether it is opening a bank account, investment activity or some services from KYC-compliant companies.
- Can institutions perform KYC without the customer’s knowledge?
Generally, institutions and corporates do it with customer’s knowledge. When identity documents like Aadhaar, PAN, etc., are requested from customers, they are generally required for KYC.
