The Reserve Bank of India’s approach to Know Your Customer (KYC) norms has seen multiple updates since 2020, reflecting on the ongoing effort to adapt to technological advancements and regulatory requirements. As per SEBI expert lawyers, these changes demonstrate the RBI’s commitment to enhancing efficiency, ensuring compliance with anti-money laundering laws, and improving customer experience in financial services.
This article will therefore explore the evolution of KYC norms with SEBI lawyer’s take, starting from the amendments made in January 2020 and culminating in the recent updates announced in November 2024.
The 2020 Amendments: A Shift Towards Digitalization
In January 2020, the RBI amended the Master Direction on KYC originally issued in February 2016. This amendment introduced two significant concepts: Digital KYC and Video-based Customer Identification Process (V-CIP), explained in the article by Vaneesa Agrawalon the Thinking Legal website.
“KYC norms and its updates were and are aimed at modernising customer verification methods and facilitating easier access to banking services, especially for customers in remote locations.”
– Vaneesa Agrawal, an expert SEBI lawyer
Digital KYC
A senior SEBI expert lawyer points out that Digital KYC allows for customer due diligence to be completed through digital means. This process, as explained by the SEBI lawyers, involves capturing a live video and photo of the customer alongside their official documents, such as Aadhaar or PAN. The amendment also mandates that the location where the live photo is taken must be recorded using latitude and longitude coordinates. This ensures that the verification process is secure and that the customer is physically present in India.
“The integration of geolocation data in Digital KYC processes adds an unprecedented layer of security, making it nearly difficult to fabricate customer locations.”
– Vaneesa Agrawal, founder of Thinking Legal law firm
Video-based Customer Identification Process (V-CIP)
Several SEBI lawyershighlight V-CIP is a groundbreaking initiative. As explained by the same SEBI lawyers, this approach enables banks and other regulated entities to onboard customers remotely. During this process, customers engage in a real-time video interaction with a representative from the financial institution. The representative asks questions to verify the customer’s identity while capturing geotagged video footage to confirm their location.
A SEBI expert lawyer familiar with the matter suggests that V-CIP has reduced onboarding time by 60% while maintaining regulatory compliance. Some tools for this approach even state that V-CIP could reduce onboarding time by 90%.
“V-CIP represents a revolutionary step in remote banking, particularly beneficial during unprecedented situations like the pandemic,” says Vaneesa Agrawal, a SEBI lawyer and founder of Thinking Legal law firm.
Key features of V-CIP, as observed by SEBI lawyers, include:
- Real-time Interaction: To ensure authenticity, the sequence and type of questions asked during the video interaction are varied.
- Data Security: The video recordings must be stored securely with date and time stamps for future reference.
- Concurrent Audits: Accounts opened through V-CIP are subject to concurrent audits to maintain process integrity.
Vaneesa Agrawal, a SEBI expert lawyer, emphasises that these amendments marked a significant step towards embracing technology in financial services, making it easier for customers to complete KYC processes without physical visits to bank branches.
Recent Updates: Aligning KYC with Anti-Money Laundering Regulations
Fast forward to November 2024, and the RBI has introduced further amendments to its KYC norms aimed at enhancing compliance with anti-money laundering regulations. These updates, as noted by SEBI lawyers, reflect a growing recognition of the need for robust customer verification processes in an increasingly digital banking environment. Let’s discuss the key modifications as addressed by multiple SEBI lawyers.
Key Updates from November 2024
- Simplified CDD for Existing Customers: One of the most notable changes, as SEBI lawyers note, is that existing KYC-compliant customers can open new accounts or access additional services without undergoing a fresh Customer Due Diligence (CDD) process.
- Unique Customer Identification Code (UCIC): The CDD procedure will now be applied at the UCIC level. SEBI lawyers explain that once a customer is verified, their identification can be used across multiple accounts within the same institution, reducing redundancy and improving efficiency.
- Mandatory KYC Updates: Regulated entities are required to update customer KYC records within seven days of obtaining any additional or updated information. This, SEBI lawyers emphasise, ensures that customer records remain current and accurate in the Central KYC Records Registry (CKYCR).
- Enhanced Monitoring for High-Risk Accounts: Financial institutions must conduct increased scrutiny on high-risk accounts. SEBI lawyers address that this process involves more rigorous checks to prevent money laundering and other illicit activities.
- Periodic KYC Updation: The terminology around updating customer information has been revised from “updation” to “periodic updation,” emphasizing regular reviews of customer details to ensure they are up-to-date.
- Changes in UAPA Procedures: The designation of officials under the Unlawful Activities (Prevention) Act has been modified from Additional Secretary to Joint Secretary.
- Terminology Standardisation: Throughout the Master Direction, references have been standardised for clarity, replacing “sections” with “paragraphs.”
Implications of These Changes
Several SEBI lawyers suggest that these recent updates to KYC norms by the RBI signify a robust effort to enhance compliance with anti-money laundering laws while simultaneously improving customer experience within financial institutions.
“By leveraging technology such as Digital KYC and V-CIP, banks can offer more accessible services while ensuring rigorous verification processes are maintained.”
– Vaneesa Agrawal, an expert SEBI lawyer
These amendments also reflect an understanding of evolving financial landscapes where digital transactions are increasingly prevalent. SEBI lawyers see that as more customers seek convenient banking solutions, these changes position Indian banks as forward-thinking institutions that prioritise both security and user experience.
Conclusion
The evolution of KYC norms reflects the RBI’s commitment to modernising banking processes while maintaining regulatory compliance. As SEBI lawyers continue to analyse these developments, the focus remains on balancing technological innovation with security measures.
“These changes position India’s banking sector at the forefront of digital innovation while maintaining robust regulatory oversight, setting a benchmark for other emerging economies.”
– Vaneesa Agrawal, an expert SEBI Lawyer.