Have you ever received an SMS or email from your bank informing you that your account is frozen, for want of know-your-customer (KYC) or re-KYC? You are not alone. This has happened to the Moneylife Foundation also.
Mind you, the Reserve Bank of India (RBI) has never directed or suggested to banks and other regulated entities (REs) to freeze the accounts of the customers if they have not completed re-KYC. In a reply to a query filed under the Right to Information (RTI) Act, RBI reveals this information.
Are you annoyed with your mutual fund (MF) or asset management company (AMC) who asked you to complete the KYC process? You are not alone. This has happened to none other than a managing director (MD) of an AMC!
“After three decades in the market and filling every form for KYC over the years including biometric verification (for now abandoned MPIN) my heart aches to receive such an email,” Nilesh Shah, MD of Kotak AMC said, sharing a screenshot of the mail received by him as part of KYC norms for the securities market.
A Glimpse of Hope: FSDC Aims for a Single KYC System
Imagine the struggle of explaining your life story to every new bank or investment company you deal with. That is the KYC mess we're facing in India right now. But wait, there's a glimmer of hope! The financial stability and development council
(FSDC) is looking to streamline KYC norms with a single system Sounds awesome, right? Well, hold on to your hats.
The Great KYC Divide: Double the Trouble, Half the Fun
It is like having two different gym memberships you never use! This means double the paperwork, half the fun. India's current KYC framework operates on two distinct fronts:
• SEBI KRAs (KYC registration agencies), established in 2011 under SEBI's jurisdiction to manage KYC for investment purposes, and
• CERSAI CKYC (central registry of securitisation asset reconstruction and security interest - KYC), introduced by the RBI in 2016 to serve as a central repository for KYC details in the banking sector.
Ironically, these systems, intended to streamline KYC processes, exist in isolation.
CKYC (CERSAI) and Its Progress: A Snail's Pace:
The guidelines, including uploading of KYC information of the customers to the central registry – CERSAI, are explained in clause no56 with the heading CDD procedure and sharing KYC information with the central KYC records registry (CKYCR) on pages no48 and 49 of the master directions cited above.
The following chart shows the customer base vis-a-vis the CKYC records uploaded as of 31 August 2023 of the public sector banks (PSBs).
Pictorial representation of the above chart
Communication of KIN Number to Customers
RBI has made it mandatory that the KIN (a 14-digit KYC identification number -KIN) number generated at CKYC must be communicated to the customers by SMS, email or letter. In theory, this number empowers individuals by facilitating easy access and serves as a portable KYC. It helps in the sharing of their KYC information with authorised institutions.
Many banks have confirmed that they have communicated to all the customers who have been allotted KIN by CERSAI. However, the data shows that four banks have a huge gap between the number of KIN allotted and the communications sent to customers.
Private banks and other REs are not public authorities and, hence, do not come under the RTI Act. When the progress of PSBs is abysmal, we can comprehend what would be the progress in other REs, including private banks.
It is time for RBI and REs to introspect on this abysmal progress after eight years of formation of the CKYC central registry.
FSDC to the Rescue? Fixing a Broken System
The task before the FSDC is mammoth and they are not expected to and should not reinvent the wheel.
Before we build anew, ask the right questions: Before we jump into the FSDC's plan, let us ask some real questions: Why is following the existing KYC rules so tough? What is stopping institutions from uploading data to CERSAI? Are there tech glitches slowing things down? Can we ditch the old systems altogether and use CERSAI as the one-stop shop? Why haven't regulators been stricter about enforcing the rules?
If we can answer these questions, then we can build a KYC system that is actually useful. Imagine a world where you only submit your KYC details once, and it follows you wherever you go in the financial world. No more paperwork nightmares, just a smooth and secure experience.
The Dream of a Unified KYC: Benefits and Possibilities
• Data central: One source of truth for KYC info. Easy for you, easy for the banks. Regulators get a clearer picture too.
• Fraud fighter: Spot suspicious activity across institutions faster. Those sneaky scammers won't stand a chance.
• Learning from fiascos: Remember the Paytm PAN mess? A central KYC system with solid data validation can prevent such mishaps.
From dream to reality: The FSDC's action plan
• Highlight PMLA power: Reassure everyone that KYC is important to fight money laundering, not just a random hassle.
• Stop the cyber crooks: The FSDC needs to address the rise of money mule accounts – basically, scammers using other people's accounts for crime. Let's shut them down!
• Reunite the regulators: Get all the financial watchdogs (IRDAI, PFRDA, SEBI, and RBI) on the same page with CKYC.
• Data sharing champs: Make sure KRAs and CERSAI talk to each other smoothly. No more information silos!
• Iron out the kinks: Work with institutions to fix any technical or process problems that are slowing down KYC implementation.
The Future of KYC in India
The FSDC's plan has the potential to be a game-changer for Indian finances. By untangling the current mess and building a strong central KYC system, they can create a future of convenience, efficiency, and security for everyone. This is a story worth following – it could impact the way you manage your money for years to come!
(Chandramouli Mohan retired as a senior manager from a public sector bank after 38 years of service in various capacities in several places across the country. He has been an RTI and consumer activist since his retirement in March 2020.)
overzealous regulatory agencies
As per the recent guidelines from CBDT, the PAN number needs to be validated with the Income Tax Records. Further to these guidelines, there are additional validations incorporated by the RTAs/AMCs to comply with the same.
Investor name for all the fresh purchases should match with the income tax records.
Date of Birth (DOB) for Individuals / Date of Incorporation(DOI) for Non-Individuals should be provided as per PAN records for New Purchases, Additional Purchases or Redemptions.
Guardian Name and DOB will be mandatory in case of a minor.
In case of existing investors whose Name or DOB in the folio is not matching with the PAN/ITD, we request you to inform them to change their details either in the MF records or in the ITD before initiating an additional purchase or redemption.
We would request you to kindly evaluate the details of all your clients to ensure that they adhere to these guidelines by March 31, 2024. Any non-adherence to these guidelines will result in rejection of transactions at the end of the RTA from April 01, 2024. The same has been extended to 30th April 2024.
Requesting your support to comply with these requirements within the above timelines.
1. DuckDuckGo is the most user privacy friendly browser but your website blocks it (due to which I have to use Google Chrome or other browser which are not privacy friendly).
2. Earlier your website used to work even when I used to block Java script but now you need Java script enabled?
3. I can't update my profile if I want to say just update country details (I need to provide all details like state, city, mobile number etc.)
I like reading your articles, but above is making using the website very unfriendly for users and also privacy invasive.
Request to please make the website like earlier that was privacy friendly.