Financial Crime World

Unraveling the Mystery of India’s KYC Process: A Deep Dive into Know Your Customer Regulations

In the world of finance, two acronyms - KYC and AML - have gained significant importance. Although they are often used interchangeably, they have distinct meanings. In this article, we delve into the intricacies of India’s Know Your Customer (KYC) process, covering its history, definitions, and regulations.

What is KYC and AML?

Know Your Customer (KYC) and Anti-Money Laundering (AML) are key components of the financial regulatory framework. Although interrelated, they have distinct meanings.

  • KYC: KYC is an essential part of the AML framework, designed to safeguard financial institutions and their clients from financial threats like money laundering, terrorism funding, and identity theft.
  • AML: AML regulations aim to prevent financial institutions from dealing with proceeds of crime or suspicious transactions.

The Introduction of KYC in India (2002)

In 2002, the Reserve Bank of India (RBI) introduced KYC regulations in India to protect financial institutions from financial risks.

Importance of KYC

Compliance with KYC regulations is mandatory in the banking sector due to the following reasons:

  1. Protection against Money Laundering
  2. Prevention of Terrorism Funding
  3. shield against Identity Theft

Types of KYC

Understanding the various types of KYC is essential as they differ in their modes of implementation.

  1. Physical KYC

    • Customers must be physically present at the bank or FI for verification.
    • Customers submit self-attested copies of Proof of Identity (POI) and Proof of Address (POA) for KYC.

  2. Aadhaar eKYC

    • Utilizes Aadhaar data stored with the Unique Identification Authority of India (UIDAI) to verify a customer’s identity online or offline.
    • No physical visit to the bank is necessary.

  3. Digital KYC

    • A paperless mode of KYC involving an official representative being present with the customer during verification.
    • The representative captures ’live’ images of the customer and their officially valid documents which are then geotagged and verified against data in the customer’s application.

  4. Video KYC

    • Consists of two stages: a video call and a review.
    • During the video call, an official representative captures the customer’s POI and POA over a video call.
    • In the review stage, another representative assesses the video call for verification.

  5. Central KYC (cKYC)

    • A FI accesses customer documents from the central KYC registry using their KYC Identification Number for quicker verification.

Stay Informed

Stay tuned for more insights into the world of KYC and AML in India, including in-depth explorations of eKYC, cKYC, Video KYC, and more.