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ARN. No. KLI/23-24/E-BB/1201
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Ref. No. KLI/22-23/E-BB/999
Unlock the essence of KYC - its meaning, full form, and role in banking. Delve into why KYC matters, simplifying its significance for banks and individuals.
In today’s interconnected world, where financial transactions span continents in milliseconds, ensuring the integrity and security of financial systems is paramount. This imperative has led to the widespread adoption of KYC full form Know Your Customer (KYC) protocols across various industries, particularly in banking, finance, and e-commerce.
KYC’s full form, Know Your Customer, represents a cornerstone of regulatory compliance and risk management, aiming to verify the identity of customers, assess their risk profiles, and prevent illicit activities such as money laundering, terrorism financing, and fraud.
KYC meaning, a set of processes and procedures implemented by businesses and financial institutions to verify the identity of their customers. The primary objective of KYC is to reduce the risks of fraud, money laundering, terrorist financing, and other illicit activities. By verifying the identity of customers and assessing their risk profile, businesses can establish trust, comply with regulatory requirements, and safeguard themselves against financial crimes.
KYC norms serve as a critical framework in this regard, helping financial institutions verify the identity of their customers and assess associated risks. In India, KYC requirements are diverse, catering to the unique needs and circumstances of different sectors and segments of the population. Let us look at the various types of KYC prevalent in India and their significance.
Aadhaar-based KYC leverages the Aadhaar card, a unique identification number issued by the Unique Identification Authority of India (UIDAI), to verify individuals’ identities. Owing to the widespread adoption of Aadhaar as a primary identification document, this form of KYC is widely used across various sectors, including banking, telecommunications, and financial services.
E-KYC, or electronic KYC, involves using electronic methods to verify the identity of customers. It eliminates the need for physical documents and allows for a seamless and paperless verification process. E-KYC is facilitated through digital platforms and APIs, streamlining the onboarding process for customers and reducing administrative burdens for businesses.
Video KYC allows for remote verification of customers’ identities through live video interactions. This form of KYC is particularly relevant in today’s digital age, enabling financial institutions to onboard customers remotely while ensuring compliance with regulatory requirements. Video KYC offers convenience and flexibility, allowing customers to complete the KYC process from the comfort of their homes.
Full KYC requires comprehensive verification of customers’ identities, including documentation and in-person verification, whereas partial KYC may involve less stringent requirements, such as basic identity verification. Full KYC is typically required for high-value transactions and certain financial products, while partial KYC may suffice for low-value transactions or limited-access accounts.
Centralized KYC (CKYC) is a centralized repository of KYC records maintained by the Central Registry of Securitization and Asset Reconstruction and Security Interest of India (CERSAI). CKYC streamlines the KYC process by allowing financial institutions to access and share KYC information electronically, reducing duplication and enhancing efficiency.
Certain sectors, such as banking, insurance, mutual funds, and securities, may have specific KYC requirements tailored to their unique characteristics and regulatory frameworks. Sector-specific KYC norms ensure compliance with sectoral regulations and address sector-specific risks and concerns.
Across various sectors, from banking to investments and insurance, KYC requirements play a pivotal role in verifying the identity of customers and assessing associated risks. Here are some scenarios when KYC is required:
Banks are at the forefront of financial services, serving as custodians of individuals’ and businesses’ finances. KYC is mandatory for banks to open new accounts, avail themselves of loans and credit facilities, and conduct various financial transactions. Here’s when KYC is required in the banking sector:
Individuals or businesses must undergo KYC verification when they open new bank accounts.
When applying for loans, mortgages, or credit cards, banks conduct KYC checks to assess the creditworthiness and identity of borrowers.
Banks may require customers to undergo additional KYC verification for certain high-value transactions.
Banks periodically update their KYC records to ensure customer information remains accurate and up-to-date.
Investments and life insurance are critical components of financial planning, helping individuals build wealth and secure their future. KYC requirements in these sectors aim to safeguard investors’ interests and ensure compliance with regulatory standards. Here is when KYC is required for investments and life insurance:
Investors looking to invest in mutual funds or participate in the stock market must undergo KYC verification.
When individuals purchase life insurance policies or other insurance products, insurance companies conduct KYC checks to verify the identity of policyholders and assess associated risks.
Financial planners and advisors may also require clients to undergo KYC verification before providing investment advice or financial planning services.
KYC documents serve as essential tools in this process, providing proof of identity, address, and other relevant information. Here is a comprehensive list of commonly accepted KYC documents:
The Unique Identification Authority of India (UIDAI) issued a unique identification number.
A travel document issued by the government that certifies the identity and nationality of the holder.
An identity card issued by the Election Commission of India that allows individuals to vote in elections.
A government-issued document that authorizes individuals to drive vehicles on public roads.
A Permanent Account Number (PAN) card issued by the Income Tax Department for tax-related purposes.
Recent utility bills such as electricity, water, or gas bills that show the customer’s name and address.
A bank statement or passbook with entries not older than three months that shows the customer’s address.
A government-issued document that certifies the identity and address of the holder.
A registered rent agreement between the landlord and tenant that confirms the tenant’s address.
Below are some other documents that are required for KYC:
Recent passport-size photographs of the customer.
Documents such as salary slips, income tax returns, or Form 16 may be required for certain financial transactions.
A form provided by the financial institution or service provider that requires customers to declare their identity and address details.
While online KYC is becoming increasingly popular, the option for offline KYC still exists. Here are the steps to follow for an offline KYC:
Aadhaar-based KYC, also known as e-KYC, has emerged as a popular method for verifying the identity of individuals electronically. Let us understand how to complete Aadhaar-based KYC or online KYC in India:
This method eliminates the need for physical documents and allows for a seamless and paperless verification process.
Select the service provider you wish to complete the Aadhaar-based KYC process with. This could be a bank, financial institution, telecom operator, or any other entity offering online services that require KYC compliance.
Access the website or mobile application of the chosen service provider and navigate to the section for completing KYC or opening a new account.
Look for the option to complete KYC using Aadhaar or e-KYC. Depending on the service provider, this option may be labeled differently but typically involves selecting “Aadhaar-based KYC” or “e-KYC” from the available choices.
Enter your 12-digit Aadhaar number in the designated field on the service provider’s website or app. Ensure that the Aadhaar number provided is accurate and matches the details associated with your Aadhaar card.
Provide consent for KYC authentication by entering the OTP (One-Time Password) sent to your registered mobile number linked with Aadhaar. This OTP serves as a secure verification method to authenticate your identity.
Sometimes, biometric authentication, such as fingerprint or iris scan, may be required to complete the KYC process. Follow the instructions provided by the service provider to complete biometric verification, if applicable.
Once the Aadhaar-based KYC process is successfully completed, you will receive a confirmation message or notification from the service provider. This confirms that your KYC has been successfully verified electronically.
If there are any changes to your personal information or contact details, update your KYC records promptly. Most service providers offer online facilities for updating KYC details, ensuring accuracy and compliance.
While online KYC is becoming increasingly popular, the option for offline KYC still exists. Here are the steps to follow for an offline KYC:
Visit the relevant institution’s website (bank, mutual fund house, etc.) you are applying to. Locate the KYC form download section. They might also offer the form in physical branches. Download and fill out the KYC form with accurate details.
Find the nearest KYC Registration Centre (KRC) associated with the institution or visit a branch office that offers KYC services. Always carry the completed KYC form and the required documents.
Submit your duly filled KYC form and the required identity and address proof documents. Identity proofs will include a PAN Card, Passport, Aadhaar Card, or Voter ID. Utility bills, bank account statements, Passports, and Aadhaar cards will come under address proof. Sometimes, fingerprint scans or photographs might be taken for biometric verification.
Upon successful document verification, you’ll likely receive an application number or reference ID for tracking the KYC process.
Traditionally conducted through physical documents and in-person meetings, KYC verification can now be completed online, offering convenience, efficiency, and enhanced accessibility.
KYC plays a crucial role in safeguarding the integrity and security of the financial system. By adhering to KYC regulations and implementing robust KYC processes, businesses and financial institutions can prevent financial crimes and build customer trust. Understanding the basics of KYC is essential for ensuring compliance and facilitating smooth and secure transactions in today’s interconnected world.
1
KYC stands for Know Your Customer. It is a regulatory process used by businesses and financial institutions to verify the identity of their customers and assess associated risks.
2
KYC can be done through various methods, including submitting physical documents, Aadhaar-based verification, video KYC, and online verification through digital platforms provided by service providers.
3
If necessary, KYC verification involves submitting required documents such as government-issued IDs, address proof, and biometric information. The service provider then verifies the documents to authenticate the customer’s identity.
4
KYC verification is important for preventing financial crimes such as money laundering, fraud, and terrorist financing. It helps businesses comply with regulatory requirements, safeguard against risks, and build customer trust.
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The five stages of KYC typically include customer identification, customer due diligence, risk assessment, monitoring of transactions, and updating KYC records as necessary to ensure compliance with regulations.
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Customers can check their KYC details by visiting the service provider’s website or mobile application, logging into their account, and accessing the KYC section. Alternatively, they can visit the branch or office of the service provider for assistance in checking their KYC details.
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Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
