In-Person Verification: Enhancing security and trust

Discover how In-Person Verification (IPV) mitigates risks of identity fraud for mutual fund investors. Learn the IPV process, benefits, and regulatory requirements, ensuring secure and trustworthy financial transactions.

Mutual fund companies face risks related to duplicate IDs, fake identities, and fraudulent documents.  To mitigate this, they have introduced a better solution—In-Person Verification (IPV). IPV is a crucial process for onboarding mutual fund investors and during this procedure, the asset management company (AMC) authenticates submitted documents.  After which, the customers are required to undergo IPV online through Skype or similar apps. 

IPV is vital for financial institutions to mitigate fraud cases and enhance customer trust. Verification confirms customers’ identity and helps to safeguard assets and reputations. According to Javelin Strategy & Research, identity fraud losses reached $16.9 billion in 2019. Next-generation verification methods, such as biometric authentication and AI-driven systems, reduce fraud cases. For example, HSBC cut fraud attempts by 70% after implementing an identity verification system using voice recognition.

What is In-Person Verification (IPV)?

IPV is a physical KYC process that is done to verify a person’s real identity and the authenticity of the documents submitted. According to Securities and Exchange Board of India (SEBI) rules, stock brokers must verify their clients in person. IPV is implemented to help resolve concerns about identity authenticity, as well as issues related to duplicate PAN, counterfeit ID cards, and synthetic ID theft, clients of financial institutions like banks and mutual fund companies experience.

The need for in-person verification

With the increasing incidence of fraud and malpractice, implementing IPV is crucial to combat risks and identity fraud. IPV helps maintain integrity and trust between the customers and the regulatory authorities.The following are some requirements of IPV:

Regulatory requirements:

Many regulatory bodies require IPV to strengthen security and ensure compliance with strict financial laws. One of these bodies is the Securities and Exchange Board of India (SEBI), which enforces IPV to reduce risks like identity theft and fraud. According to SEBI regulations, it is now compulsory for all investors, NRIs, Indian citizens, and expatriates, to obtain and complete an in-person verification before investing in mutual funds and cash.  

  • SEBI guidelines for IPV mandate that every intermediary must conduct video IPV for its customers. 
  • Stock brokers are tasked with collecting and maintaining crucial client information in the KYC application, including name, company, designation, and signature. 
  • All other intermediaries must utilize the IPV conducted by a SEBI-approved intermediary. Furthermore, these intermediaries can access the data by obtaining an updated KYC Registration Agency (KRA) document, which reduces the need for repetitive verifications and data duplication.

Security requirements:

Considering the potential threats in the identity verification process, it is crucial to implement IPV as a preliminary procedure in customer onboarding as it provides an extra layer of security to protect from fraud and identity theft. 

IPV confirms the true identity of the person and the presentation of original documents, reducing the possibility of identity fraud. It verifies the authenticity of both the person and the authenticity of the documents presented, making it very hard for an imposter to get around the system. IPV reinforces the message of the institution keeping personal information and financial assets safe, hence increasing customer confidence. 

While performing IPV, the financial representatives are in a position to notice the individual’s behavior and reaction, which may detect some suspicious activities that might be missed in an automated system, additionally the human element adds another layer of closer scrutiny and security.

Compliance requirements:

Regulatory bodies universally mandate using IPV as part of their KYC and AML requirements and this action ensures the avoidance of legal penalties and guarantees compliance with operational licenses. AML compliance specifically involves strict adherence to regulations governing anti-money laundering, while KYC compliance relates to the requirements for identifying and verifying customers.

Customer Requirements:

Establishing trust and credibility with the customer is paramount, allowing for open and honest communication about our products, services, and policies. It is essential to provide responsive, knowledgeable customer support. Safeguarding customer information and privacy while consistently delivering on the commitments is imperative.

Fraud prevention: 

To prevent financial crimes and identity fraud it is crucial to conduct  IPV to verify identities and mitigate the risks of identity theft. in-person verification provides an extra layer of security, hence, preventing identity spoofing.

How does IPV work?

IPV within the KYC process is quite simple. Previously, individuals had to go through and complete the process onsite at the offices. Nowadays, it is possible to complete the process via online tools like Skype.

Process of conducting IPV

To conduct an in-person verification online, an individual needs to follow these simple steps as outlined by SEBI guidelines: 

  • Submitting an online KYC form: The customer will need to fill out the KYC form with their details including name, address, and contact information. Subsequently, they must upload the necessary identification and address proofs onto the online KYC form.
  • Consent request for video verification: The assigned officer will start the verification process after receiving customer consent to initiate a video call.
  • Document submission: The customer needs to upload all the necessary documents requested by the officer during the video call.
  • Identity verification: When a customer provides their identification and address proofs, KYC form and signature, AI technology is utilized to verify the validity of documents, including Aadhaar, by employing UIDAI’s authentication mechanism. Additionally, facial verification is carried out through AI, which involves matching the customer’s ID proof photo and conducting liveness detection, followed by posing questions related to the submitted documents.
  • Video proof collection: All conversations are video-recorded for verification purposes and are timestamped for accuracy.
  • Final approval/declination: Following the video call, a trained officer conducts a thorough examination of the KYC application. If no inconsistencies are detected, the application is approved. However, if any discrepancies are identified, the application is rejected.

Documents required for performing IPV in KYC:

The following documents are required for an in-person KYC process:

Address proof

  • Passport
  • Aadhaar card
  • Driving license
  • Voter ID
  • LIC policy
  • Bank account statement or passbook (not older  than three months)
  • Identity cards issued by various government organizations
  • Other documents, as required by the AMZ

Identity proof

  • PAN card

Authorized entities for performing IPV

Several authorized entities are responsible for conducting IPV verification to validate the documents and identities of mutual fund investors, ensuring compliance with regulatory standards.

  • KYC Registration Agency (KRA) – These KRA agencies hold the responsibility for ensuring the registration and maintenance of investors’ KYC records. They also conduct IPV procedures when required.
  • Mutual fund agent – The mutual fund companies appoint their agents to facilitate the IPV verification process, help with the transactions, and provide assistance to the investors to ease the onboarding process.
  • Asset Management Company (AMC) – AMCs are tasked with coordinating mutual fund management and operational activities, and the authentication of investor identities when deemed necessary.
  • Mutual fund distributor –  A mutual fund distributor plays a crucial role in the world of finance, serving as an intermediary between investors and mutual funds and may conduct IPV as part of the investor onboarding process.
  • Mutual fund’s registrar – The registrar and transfer agents have a key responsibility in keeping precise records of investors and their transactions while ensuring adherence to regulatory standards. They are vital in investor support and are also engaged in IPV processes as needed.
  • Transfer agents like CAMS or Karvy Computer Share Private Limited – Compute Age Management Services (CAMS) KRA, a company that collaborates with the Securities and Exchange Board of India (SEBI), are responsible for the verification and registration of customer details, particularly about financial investments.


Benefits of IPV

IPV enhances customer confidence by providing an extra layer of security and reinforcing the message that the institution prioritizes the safety of personal information and financial assets. The following are some advantages of IPV:

Advanced security and authenticity:

IPV helps verify the accuracy of client information and credentials. It ensures a heightened level of validity in the KYC verification processes. This process controls identity fraud, prevents money laundering, and increases the integrity of customer identities, making it an important step in ensuring compliance and security across a variety of industries, particularly banking.

Adherence to SEBI regulations:

Complying with the IPV account verification protocols results in maintaining SEBI guidelines and regulations, promoting a regulatory-compliant atmosphere. Adhering to SEBI regulations and following IPV procedures are crucial in maintaining the morality of the securities market, protecting investor interests, and ensuring complete compliance with applicable laws and regulations.

Risk Management:

IPV  helps mitigate risks associated with fraud, identity spoofing, and financial crimes, while also limiting synthetic identity fraud which is a growing concern in today’s economic atmosphere. Thus, safeguarding intermediaries and clients from potential risks. 

Who is required to become KYC compliant?

Given that IPV is a component of the complete digital KYC procedure, let’s look at the types of investors and clients who must be KYC certified. On the list are:

  • Any individual(s) or entity(s) who invests.
  • Guardians who make investments on behalf of children.
  • When investing money via a Power of Attorney (PoA), the holder(s) of the PoA. 

Individuals who have become investors due to a legal process, such as the transfer of units after the original owner’s death. Before these transactions occur, the claimant/person(s) must be KYC-compliant.

In-person verification vs e-KYC

e-KYC refers to Electronic Know Your Customer, is a digital process used by financial institutions to verify the identity of their customers remotely. e-KYC verification is done through digital mode and doesn’t require physical documentation. For instance, India employs e-KYC for Aadhar verification.

The main difference between eKYC and IPV is the ease and convenience of access. eKYC is great for people who live in remote areas or have busy schedules because it can be done anywhere there is an internet connection. On the other hand, on-site KYC, or IPV, provides a strong level of authentication and security, reducing the risk of fraud or errors; Once identified, the bank representative verifies the customer’s ID card and other relevant information.


Best practices for implementing IPV

Implementing an effective in-person verification process, however, requires careful consideration of various factors to ensure both security and user experience. In this guide, we will explore the best practices that organizations should follow when implementing in-person identity verification. Here are some best practices for implementing IPV:

  • Automating document verification and biometric matching:

One of the best practices for implementing IPV is to automate the document verification process and biometric matching. This can be done by integrating Optical Character Recognition (OCR) to extract data from documents, which ensures faster and error-free data processing. Implementing machine learning algorithms to compare the document data with the stored information improves the accuracy of the entire process.  

  • Leveraging advanced forensic analysis to detect ID tampering:

Another important practice is to make use of digital forensic tools to analyze images and documents for signs of duplications, fraud, or forgeries. It is crucial to continuously monitor the systems to detect any occurrence of unusual activities or patterns that may suggest attempts at document tampering. Incorporating image analysis techniques to spot inconsistencies in photos that indicate any form of manipulation, such as incorrect lighting or unnatural effects, is also important.

  • Providing seamless IPV experiences for customers:

To ensure a positive experience for customers, user-friendly designs and interfaces should be used for the IPV process. Employing responsive web design techniques can be especially useful, as customers can complete the process through their smartphones. Providing clear, step-by-step instructions and visual aids to guide customers through the verification process reduces errors and confusion. Implementing a feedback mechanism to gather user insights and continuously improve the IPV process based on customer experiences and suggestions are also recommended.

Conclusion

In conclusion, In-Person Verification (IPV) plays a crucial role in ensuring robust identity verification and Know Your Customer (KYC) processes.It aids in confirming the authenticity of the submitted data and preventing fraudulent activities such as money laundering and identity spoofing. IPV is an essential component of the digital onboarding process, providing a secure means of verifying customers’ identities remotely. By adopting IPV as part of digital onboarding, financial institutions, and mutual fund companies can enhance the security of their platforms and build trust with their customers.

FAQs

1. what is in-person verification?

In-person verification (IPV) is a crucial component of the Know Your Customer (KYC) process, introduced by SEBI in 2011. It involves the physical validation of the data submitted in the KYC application by an Annual Maintenance Contract (AMC) or broker’s personnel to ensure its authenticity. This process is designed to verify a person’s identification, and it plays a vital role in maintaining the legitimacy and integrity of the KYC procedure.

2. How to do in-person verification?

To verify an individual’s identity according to SEBI guidelines, they must complete an online KYC form with personal details and submit identification and address proofs. They must then consent to a video call with an assigned officer, during which they will upload the required documents for AI verification and facial recognition. All conversations during the call are recorded and timestamped. Finally, a trained officer will review the application and make an approval decision based on the findings.

3. Is in-person verification mandatory?

By SEBI regulations, all investors, including NRIs, Indian citizens, and expatriates, are now required to undergo an in-person verification (IPV) before making investments in mutual funds.

4. What exactly is IPV in records?

in-person verification is a new requirement for investors in our mutual fund investors’ funds. To accomplish this, AMC will re-validate the KYC information provided by the customers electronically. The official person from the financial institution or the distributor with all the required documents will conduct the procedures.

Mounica S

Mounica S

CONTENT MARKETING INTERN

LinedIn
Mounica crafts compelling content for Hyperverge's audience, driven by her passion for impactful storytelling.Her unique perspective enriches her writing, consistently yielding substantial and engaging content.

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