Ahead of the Union Budget 2024, the government is deliberating on a single Know Your Customer (KYC) for all financial services. It aims to reduce the burden of duplication and cost of paperwork on financial institutions and other businesses and consequently promote ease of doing business.

Business activity is often subject to regulatory frameworks meant to protect economies and investors at the individual level. If regulations are essential for overall security, it is important to streamline processes and records with today’s technological advancements with the aim of achieving a strong investment and credit-friendly environment. That’s where CKYC comes in.

A centralized, full-proof KYC can take India’s investment climate to a higher level, building trust, enabling lenders and unleashing influence to the growing class of investors in India.

All set for revamped CKYC?

The Finance Ministry, led by Minister Nirmala Sitharaman, has called for an important high-level meeting on January 24 which will be attended by top officials of the ministry, regulatory bodies and heads of private and public sector banks.

The meeting will be attended by officials from various regulatory bodies including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Fund Regulatory and Development Authority. (PFRDA). Apart from this, representatives of the Enforcement Directorate (ED) will also be present in this important meeting.

The discussion will reportedly revolve around Central KYC, particularly the efficient use of the Central Know Your Customer Registry (CKYCR), which has been considered important to facilitate ease of doing business and customer due diligence. Full compliance with the requirements has been ensured.

What is CKYC?

CKYC enables customers and investors to complete KYC only once before interacting with various entities in the financial services sector. It aims to achieve greater ease of doing business by providing investors with greater agility across multiple financial institutions, and by streamlining databases and avoiding duplication of KYC done through multiple organisations.

This will significantly reduce the compliance burden on financial institutions and the additional cost of repeating KYC processes. Furthermore, it will create a streamlined database that will provide a clear picture to regulatory bodies and law and order agencies.

Under CKYC, individuals can submit their KYC documents, such as proof of identity and address, only once and obtain a unique 14-digit KYC number allotted by the Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI). Which is a statutory body. Under the auspices of RBI.

While the traditional KYC process involves physical presence and the need for physical documents and subsequent eKYC implementation, the search for an easier electronic alternative to KYC involves an online process seeking only digital documents – CKYC conceptually demands digital documents. There is a one-time KYC and biometric verification.

‘High-risk’ hiccups

As of March 31, 2023, the CKYC Records Registry hosted more than 70 crore KYC records, and the growing number of KYC records downloaded by reporting entities from CKYCRR further highlights the benefits and ease provided by this repository to reporting entities and their customers. Reflects.

Central KYC was enacted in 2016, but in 2023, the RBI deemed these registrations as “high risk”, causing a shock across the industry and slowing down the pace of onboarding customers through the process.

The high-risk tag stems from doubts about the quality of the data and its susceptibility to fraud. While CKYC was a good idea aimed at reducing hassles and costs for financial institutions and other businesses that must verify the KYC status of their customers, the high risk tag indicates that it was not foolproof and requires a larger The component may require face matching and biometric verification.

However, the government has not given up on its agenda of streamlining KYC norms to boost business prospects for India’s booming financial market. The government estimates that upon full implementation, CKYC will provide benefits to investors such as cost optimization, interoperability of KYC records across the financial sector and facility to upload documents at a centralized location.

If CKYC is implemented with a foolproof mechanism, the government will utilize its full potential, provide favorable conditions for both businesses and customers and enhance the country’s ease of doing business ranking, especially in terms of ‘getting credit, In the parameters of ‘investor protection’ and. ‘Cross Border Trade’.

Since, there are other KYC norms in use whose registries may become redundant in case of CKYC implementation, the government may try to resolve these issues before Budget 2024.

Here’s how KYC works

Introduced by the Reserve Bank of India (RBI) in 2002, KYC has managed to curb money laundering and fraud by ensuring that banks have information about their customers to understand their financial activities and assess potential risks. There is enough information. However, at the time the process involved personal verification which was time and resource consuming and was not accessible to everyone.

Subsequently, the introduction of Aadhaar helped in creating better conditions for KYC. According to Finance Minister Sitharaman, the cost of customer acquisition through KYC has come down from Rs 500 to Rs 700 per person to only Rs 3 due to leveraging the Aadhaar database.

KYC allows organizations to gather vital customer information, including identity, address, occupation and income source, helping financial institutions assess risk profiles and provide appropriate services.

All financial institutions in India must follow the KYC procedures outlined by the RBI, ensuring a standardized approach to industry-wide integrity.

KYC is required for both new customer accounts and maintaining existing accounts, regular verification and updating of customer details.

Financial institutions are responsible for periodically updating KYC records to keep information current and accurate, to help identify changes in customer behavior or suspicious activities.

Why is KYC important?

KYC compliance is important to build trust, transparency and collaboration while reducing risks. KYC helps establish trust in real-time cross border payments and large transactions in general.

In an ever-expanding global economy and the emergence of new technologies, financial institutions face increased susceptibility to illicit activities. Therefore, in this era of increasing usage of financial services, KYC is essential.

KYC processes play a vital role in detecting fraudulent activities within customer accounts, allowing financial institutions to identify unusual patterns or transactions that may indicate fraud or identity theft. Another major goal of KYC is to prevent money laundering by verifying a customer’s identity and understanding their financial activities, helping to detect and prevent illegal activities.

The implementation of Know Your Customer (KYC) standards serves as a protective measure, including steps such as confirming the customer’s identity, understanding their activities, validating the validity of funds and assessing related money laundering risks. Are.

The cornerstone of a successful compliance and risk management program lies in strong Know Your Customer (KYC) processes. Fulfilling KYC obligations is becoming increasingly demanding, with increasing regulatory requirements for anti-money laundering and KYC compliance gaining prominence. Both banks and corporations are allocating substantial resources and time to enhance KYC compliance processes to enhance their global capacity and trust, coupled with the country’s effort to build a solid pool of verified and legitimate customers.