KYC is a term that should be familiar to everyone who uses banking or financial services. KYC is a process that banks and financial organizations use to verify their customers’ identities and addresses. Know Your Customer is an acronym for “Know Your Customer.” This bank obtains the necessary information from customers in order to defend their interests.
Customer identification is the most essential aspect in boosting performance in the succeeding phases of the process, therefore KYC (Know Your Customer) is a critical component in today’s fight against financial crime and money laundering.
For financial institutions, the worldwide landscape of anti-money laundering (AML) and counter-terrorist financing (CFT) raises significant stakes.
National laws now include stringent directives like AML 4 and 5 as well as preventive procedures like “KYC” for customer identification influenced by international standards like The Financial Action Task Force (FATF).
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What exactly is KYC?
Know Your Customer (or Know Your Client) is a phrase that means “know your customer” or “know your client.”
The obligatory procedure of identifying and validating the client’s identification upon opening an account, as well as frequently throughout time, is known as KYC or KYC check.
To put it another way, banks must verify that their customers are who they claim to be.
If a client fails to meet minimal KYC criteria, banks may refuse to open an account or end a business relationship.
It’s the procedure by which a company checks its clients’ identities and assesses the danger of illicit intent affecting the commercial connection. Bank laws and money laundering procedures that govern these actions are referred to as KYC. The Reserve Bank of India has made this process mandatory for all banks and financial institutions in India. This practice has been made essential by the central bank in order to avoid the misuse of services offered by banks or financial organizations. We shall learn why KYC is necessary for this essay.
Documentation is required
The government has designated six types of documents as approved KYC documents, which serve as verification of a person’s identification. Valid documents include a passport, driver’s license, voter identification card, PAN card, NREGA card, and Aadhar card. After you’ve submitted your KYC documents to the bank, the bank may ask for them again after a certain period of time to update your KYC records and confirm your identity.
Procedure
Opening bank accounts, purchasing mutual fund accounts, bank lockers, and online mutual funds, as well as investing in gold, all require the KYC procedure. The individual’s identity and address can be verified using the aforementioned documents.
- To prove your identification, you must supply one of these documents.
- These documents will be accepted as proof of address if they contain the same address as to where you live.
- If you are unable to give verification of your current residence’s correct address, you will be needed to provide further statutory documents. Consumer bills such as phone, electricity, or gas refilling bills, passports, mailed bank account statements, ration cards, appointment letters from employers, and letters from commercial bank managers are all acceptable as address verification.
What is the significance of KYC?
KYC verification of customers is now the sine qua non for banks and financial institutions, according to new criteria, because it ensures the person’s application and identification, as well as the bank’s guarantee that all the documents provided are legitimate. There have been numerous instances of money being taken from an account through deception and forgeries. Forgery is less likely and can even be avoided if the applicant’s identity is verified. It also protects clients by limiting scams caused by false identities. It also serves as a strong deterrent to terror financing and money laundering.
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What is electronic Know-Your-Customer (e-KYC)?
E-KYC stands for Electronic Know-Your-Customer. This is only possible if you have an Aadhaar number. When using the e-KYC service, you must expressly consent to the Unique Identification Authority of India (UIDAI) releasing your identity/address to Bank Branches/Business Correspondent (BC) through biometric authentication.
After receiving consent, UIDAI sends your data to the bank in an electronic format, which includes your name, age, gender, and photographs. Under the PML (Anti-Money Laundering) Rules, the information submitted through the e-KYC process can be treated as a “officially legitimate document,” and it can be used to verify KYC.
