KYC and Customer Due Diligence policies are the foundation of an effective anti-money laundering process.
Securities and Exchange Board of India (SEBI)’s circular dated April 24, 2020, laying down guidelines for know your customer (KYC) using technology is an extremely progressive and a timely intervention for the entire securities industry.
Fulfilling KYC norms is an essential part of onboarding new customers for all players in the banking, financial services and insurance space. KYC and customer due diligence policies are the foundation of an effective anti-money laundering process.
The KYC process requires every SEBI registered intermediary to collect and verify the proof of identity and proof of address.
The government has specified a list as officially valid documents like Aadhaar card, passport copy, driving licence, voter’s identity card, etc. that can be submitted against these requirements.
So far, for players who followed a physical process, this activity was being done by collecting physical documents and meeting with the investor, which used to take several working days–up to 10-12 days in many case for a full-fledged account opening-to process these even with all supporting documents in place.
With technological advancement and integration of various digital platforms like eKYC, Digi locker, eSign, PAN verification facility, etc, a lot of KYC and account-opening processes can be done online, which progressively over the years, the regulator also has recognised and amended rules accordingly. This resulted in greater efficiency and quicker turnaround for all players within the system, ultimately helping the end customer.
For market participants like stock brokers, there are additional layers of compliance that they need to fulfil such as verification of bank account details, PAN, etc and certain documents like power of attorney, which needs customers’ wet signature.
SEBI has taken the lead once again by further challenging the market participants to up their ante by coming out with a revised KYC guideline using technology. These guidelines incorporate certain recent changes in PMLA Rules and UIDAI regulations.
The most important of these are related to simplification of process for original verification of document, in-person verification of the investor, and capturing image of wet signature.
SEBI has also permitted intermediaries to do online KYC, providing a detailed process for performing in-person verification/ Video IPV.
As a consequence, SEBI has now allowed market participants to implement their own secure app-based online KYC process that will facilitate all the above through which a user can perform the entire KYC process him/herself. This is an extremely forward looking initiative, taking care of the customer experience.
This circular, when viewed in conjunction with NSDL and CDSL’s eDIS services, will help the industry to offer a fully secured online account opening product.
Under eDIS services, a broker can provide facility to the investors for executing a transaction in a demat account by having an arrangement with depository participant, even without a power of attorney.
An initiative like this is the need of the hour, especially during a time like this when the whole country is practicing social distancing.
There is now no need for a physical meeting for new account opening and customers can open accounts online from the comforts of their home or office.
From the regulator’s perspective too, this is stronger than many earlier physical processes, where there was an angle of human intervention or interpretation which could accelerate or stall a process.
Now, with all processes completely digital, compliance standards and processes will also be of much higher magnitude.
While implementing technology-based solutions, the intermediaries should carry their own risk assessment and adopt suitable mitigants and remain ever vigilant to cyber risks.
(The author is MD & CEO of ICICI Securities.)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.