KYC or Know Your Customer is the process followed by banks, insurance companies, and other institutions before or during transactions with their customers to confirm all customers' and clients' identities and addresses.
All banks, financial institutions, and digital payment businesses that carry out financial transactions are now required to use KYC, per the RBI. Let's know about KYC in more detail as well as the required KYC paperwork.
What is KYC?
Financial transactions can be problematic due to illegal activities like money laundering and fraud, which is why KYC was implemented in India in 2002. Before allowing a customer to access any services, KYC refers to the process of authenticating and validating papers pertaining to their identity and address. Once the KYC verification is complete, the Central KYC Records Registry issues a special number or code known as the Know Your Customer/Client Identifier. The KYC verification of all existing and new customers was made necessary for banks, financial institutions, and intermediaries in 2004 by the Reserve Bank of India (RBI).
By doing this, the RBI made sure that every transaction is completed following a careful assessment of a customer's identity, which will help prevent fraud. The requirement for KYC verification for all clients and consumers was quickly adopted by other regulatory agencies.
Why is KYC Used in Banking?
In the banking industry, KYC stands for document verification in order to prove a customer's identification. By verifying that transactions are real, it intends to reduce scams and frauds like financial fraud and money laundering. RBI regulations state that all banks, financial institutions, and intermediaries must verify customers' KYC information before offering them services. The KYC papers list, which compiles a list of officially recognized documents for KYC verification, holds an important place in this regard. According to the 2002 Prevention of Money Laundering Act, KYC compliance is also necessary.
Why is KYC Needed?
To make any kind of financial transaction, including opening a savings bank account, benefiting from the fixed deposit (FD) and third-party wallet features, or beginning a mutual fund transaction, the KYC process should be finished. According to the Securities and Exchange Board of India's (SEBI) regulations, full KYC is actually now necessary to open a Demat account, a stock trading account, as well as to use the services of asset management firms and intermediaries.
What are the Benefits of KYC?
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Verifies the client’s identity
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Makes it easier to understand what type of financial activities the clients are involved in
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Looks after customer activities to ensure there is no risk of money laundering
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KYC protects lending institutions from losses and scams caused by illegal transactions
What are the Types of KYC Verification?
There are only two types of KYC verification:
In-person KYC: This type of KYC is done offline and in person. You can go to a KYC kiosk to finish the in-person verification (IPV). You can also make a request to have a representative from the KYC Registration Agency visit your house to confirm your identity by contacting them. The amount of money you can invest is unrestricted if you use the in-person KYC verification service.
Aadhaar-based KYC: Aadhaar can be used for online KYC verification. You have a choice between Aadhaar-based Biometric KYC and Aadhaar-based Online KYC. Please be aware that if you select this KYC verification option, you are only allowed to invest up to Rs 50,000 in mutual funds annually.
What are the Documents Required for KYC Verification?
Six documents satisfy the requirements for "Officially Valid Documents" (OVDs) and can be used for identity verification, according to the Government of India's standards. Even if you have already given an institution your KYC documents, they may still need them in order to periodically update their records.
Proof of Identity:
Aadhaar, passport, driver's license, voter ID card, PAN card, or any other identity card or document containing your photo that is issued by a statutory or regulatory authority, the state or federal government, or its departments
Identity cards issued by public financial institutions, public sector organizations, and scheduled commercial banks
Identity cards are provided to members of professional organizations such as the Bar Council, ICAI, ICWAI, and ICSI by colleges that are linked with universities.
Proof of Address:
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a passport, a voter identity card, a registered sale or lease agreement for a house, a ration card, a driver's license, a copy of an insurance policy, or a flat maintenance bill (not more than three months old)
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Utility bills like landline telephone bills, electricity bills or gas bills (not older than 3 months)
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entries in a passbook or a bank statement (not more than three months old)
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Supreme Court and High Court judges' self-declarations, which include their new addresses
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Proof of residency from any of the aforementioned organizations can provide:
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Bank Managers of Multinational Foreign Banks and Scheduled Commercial Banks
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Scheduled Cooperative Banks
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Representatives to the Legislative Assembly who have been elected
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Gazetted Officer
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Notary Public
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Parliament
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Any government or statutory authority's documents
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The Central or State Government and their Departments, Statutory or Regulatory Authorities, Scheduled Commercial Banks, Public Sector Undertakings, Public Financial Institutions, and Colleges associated with Professional Bodies such as ICAI, ICWAI, Bar Council, and ICSI could issue identity cards or documents with an address to their members.
