RBI KYC Norms
KYC, or know-your-customer, is a procedure for identifying and verifying a customer while opening a bank account or during customer onboarding. And all financial entities, including banks and NBFCs, must comply with the RBI KYC to continue their regular operations.
This blog briefly discusses different RBI KYC norms or guidelines financial entities must abide by, including RBI video KYC solutions.
What is RBI, and What Does it Have to Do with KYC Norms?
Commonly known as RBI, The Reserve Bank of India is India’s Central Bank and a regulatory body known for setting guidelines and regulating the Indian banking system. Not only banks but other NBFCs in the finance domain also need to abide by RBI’s guidelines as and when required.
The Reserve Bank of India made it mandatory for every financial institution to strictly implement KYC for identifying and verifying each customer in 2004. And ever since, several updates have been introduced, the latest being about approving the video KYC solution in 2021(more on this later in the blog).
The primary reason behind KYC implementation was the rise of fraudulent activities in the finance domain, including money laundering and terror financing.
KYC helps financial entities determine customers who could be a risk for the organization and reject their applications based on what they find. Along with preventing terror financing and money laundering, RBI’s KYC norms also protect the companies operating in the financial domain from fraud.
RBI’s KYC Norms
Here are the most important KYC norms by RBI that need to be followed by all financial entities without fail:
- CDD or KYC Document Check: CDD, or customer due diligence of KYC document check, is necessary to identify the customer.
Individual: In case it’s an individual a business is onboarding, officially valid documents such as PAN card, masked Aadhaar card, utility bills, driving license, or passport can be used for verification.
Businesses: In this case, the officially valid document (OVD) procedure is replaced with an entity proof check, wherein the documents such as certification of incorporation can be used.
- Verification Against PEP Lists and Sections
The customers’ data need to be compared against PEP or politically exposed persons lists or terrorist lists. And if a discrepancy is found, the same shall be reported to the Financial Intelligence Unit of India. This helps define the risk levels of a particular customer and prevent money laundering, among other crimes.
- Employee Training
The new hires and the existing employees must be trained regularly to make them aware of the AML/CFT guidelines. And the primary focus should be on the employees who deal with employees firsthand, such as front desk, customer onboarding teams, etc.
- Customer Profiling or Categorization
Based on how risky a customer is, the financial entity must categorize each customer as low/high/medium risk. For instance, customers who’re government employees who have a good record can be placed under the low-risk category, while businesses or individuals operating in gaming, matrimony, or brokering must be categorized under medium or high risk.
- Ongoing Checks
RBI clearly states that due diligence must be strict and ongoing. This is to help companies spot any suspicious patterns that might indicate fraudulent activity.
- Monitoring the Transactions
The financial entity must monitor all transactions and should know what’s normal and what’s not. This will help them differentiate any weird transaction pattern from a normal one. Also, there should be a limit for different accounts based on what category they belong to.
Furthermore, a review must be conducted not less than once in 6 months for risk categorization, wherein due diligence measures are taken.
- Keeping the Records
The financial entity must follow a reliable record-keeping process that aligns with the PMLA Act. The documents are stored so that they can be accessed by the government authorities in case of an investigation. A principal officer must also be appointed to monitor & report transactions and share the information according to the law.
- Ongoing Updates
Both the KYCs and customer categorization profiles need to be updated regularly. According to RBI, KYC for high-risk profiles should be updated every two years, medium-risk profiles every eight years, and low-risk profiles every ten years.
What Guidelines Does the Video KYC RBI Include?
Video KYC is a unique customer identification method used by financial institutions, such as banks or other NBFCs. The customer and a trained official enter into an audio-visual interaction, wherein the customer is asked to present their live photo and other documents for ID verification.
In May 2021, video KYC was approved by RBI as an official method for ID verification for banks and other NBFCs. Here’s what the video KYC update by RBI entails:
- The customer’s picture should be a live photo.
- A clear PAN image should be verified against government records.
- A face match between the customer’s photo and ID must be done.
- The customer’s live location must be geotagged.
- Video interaction must be initiated from the financial RE’s domain.
- The video must be stored safely along with a date and time stamp.
- The Aadhaar offline verification doc must not be older than three days.
- The RE official and the customer must be simultaneously present during the interaction.
- A masked Aadhaar card must only be used.
- Prior consent from the customer should be taken explicitly.
Conclusion
RBI is becoming more and more strict with time and taking stringent measures to comply with FATF guidelines and prevent money laundering, terror financing, and frauds in the financial domain through identity verification services.
Therefore, every bank, insurance firm, broker firm, or other NBFCs, must comply with RBI’s guidelines and ensure security for them and for their customers.
FAQs
Is video KYC RBI Approved?
Yes, RBI approved video KYC as a valid method for onboarding customers and verifying their identity in May 2021. It also simplified the process of periodic updating of the KYC.
What is video KYC RBI?
Video KYC RBI is an effective and new method of identity verification. It involves a professional that belongs to the financial entity and the customer whose KYC is to be done. Both of them indulge in an audio video interaction, and if the customer meets all the requirements, his KYC is marked done.
Is video KYC full KYC?
Yes, video KYC RBI is considered equivalent to a full KYC. Therefore, any bank or financial entity can opt for it and ensure a secure and seamless customer onboarding experience.
