Everyone using banking or financial system must has heard about KYC. Banks and financial institutions use KYC to verify the identity and address of their customers. KYC stands for Know Your Customer. With the help of this bank collects the required information of consumers to protect their interest.
It is the process through which a business verifies the identity of its customers and assesses the potential risks of illegal intentions to the business relationship. The term KYC is used to refer to bank regulations and money laundering rules that govern these activities. This process has been declared mandatory for every bank or financial institution in India by the Reserve Bank of India. The central bank has made this mandatory procedure to prevent misuse of services provided by banks or financial institutions. In this article, we will understand why KYC is important?
Documents required
The government has recognized six types of documents as certified documents for KYC, which are considered as proof of the identity of a person. Passport, Driving License, Voter ID Card, PAN Card, NREGA Card and Aadhar Card are accepted as valid documents. Once you have submitted the KYC documents to the bank, the same bank may ask for these documents to update your KYC records again after a specified time to ensure your identity.
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Procedure
KYC is necessary for opening bank accounts, buying mutual fund accounts, bank lockers and online mutual funds and investing in gold. On the basis of the aforementioned documents, the identity of the person and his address can be verified.
- You are required to provide one of these documents to verify your identity.
- If these documents contain the same address where you are living, they will be treated as proof of address.
- If you are not able to provide proof of the correct address of your place of residence, then you are required to provide other statutory documents in this regard. Consumer bills like telephone, electricity or gas refilling bill, passport, bank account statement sent by mail, ration card, appointment letter issued by the employer, a letter sent by bank manager of commercial banks etc are accepted as address proof.
Why is KYC important?
According to new guidelines, KYC verification of customers is the sine qua non for banks and financial institutions, because through this method the person’s application and his identity are ensured and the bank gets the assurance that all the documents given are genuine. There have been many such cases in which money was withdrawn from the account by cheating and forgery. If the identity of the applicant is ensured, the chances of forgery are reduced and can be prevented. Moreover, it also protects customers as it limits frauds due to fake identities. Moreover, it acts as a good deterrent against terror funding and money laundering.
What is e-KYC?
E-KYC stands for Electronic KYC. This is possible only for those who have Aadhaar number. While using the e-KYC service, you will have to authorize the Unique Identification Authority of India (UIDAI) to release your identity/address through biometric authentication to the Bank Branches/Business Correspondent (BC) with explicit consent.
After obtaining authorization, UIDAI electronically transfers your data including your name, age, gender and photograph to the bank. The information provided through the e-KYC process is allowed to be treated as an ‘officially valid document’ under the PML (Anti-Money Laundering) Rules and serves as a valid process for KYC verification.