KYC stands for Know your customer is known to be a depository, which
is captured centrally, to store valuable details of the customers. As per the
banking regulation, any financial institution or other companies must collect
the required data from their clients. These documents are known as KYC
documents that help to identify the customers engaged in multiple types of
financial transactions with the institution. All financial institutions in
India need to make compulsory KYC verification of their customers to restrict
money laundering.
KYC norms and policy
RBI has enacted the KYC norms in the year 2002. Since then, every
new bank account opened need to get the KYC documents filed by the customer.
The prime focus of implementing this norm is to stop money laundering and
prevent terrorist financing. RBI also advised the banks to follow proper steps
to make this rule compulsory. To grow the awareness among the mass about this
rule, the banks
• Issue public notices in the local newspapers
• Identification of zonal customers has been made compulsory
• Customers are served with individual notices if they fail to
follow the rule
It has also been noticed that if any bank violates the rule, then it
gets penalized under the
Banking Regulation Act of 1949. Even for the old accounts, customers
with banks and financial institutions need to visit the nearest branch and
submit documents for KYC
verification.
At present, the RBI has published new guidelines for the KYC
policies. As per this new policy, every bank needs to classify the customers as
per the risk categories. For example, high, medium, and low risk. Every bank
should identify the customer’s identity with the help of independent and
reliable data. Transactions of the customers are required to be monitored depending
on the risk category of the customers. Periodic checking of the risk category
of the customers is required and, the amendment should be made accordingly.
Type of KYC documents to be submitted by customers
Among other KYC documents, the two basic documents are passport size
photo with identity proof and address proof. So, whether you are going to open
a savings bank account, mutual fund, or insurance, any of the following six
documents are required to be presented as identity proof. So, these documents
are
• Pan card
• Aadhar Card
• Voter’s identity card
• Passport
• NREGA job card
• Driving license
If the address is not mentioned, in the above-mentioned documents,
then you need to submit another acceptable document as address proof.
Now you can understand how important is KYC verification. It helps
to establish the identity of the customers, and also it becomes easy to
understand the nature of the activity of the customer.
Benefits of implementing
KYC:
There are several benefits associated with the implementation of
KYC.
• Restricting scammers from participating in ICOs for fulfilling
malicious purposes
• Restriction of money laundering
• Ensuring the safety and protection of the assets of investors
• To avoid legal, reputational, or taxing issues
• For establishing strong credibility with the banks
The
responsibility of checking and maintaining of the KYC documents remains with
the risk containment unit of the banks and financial institutions.