Major amendments made to KYC Master Direction

Major Amendments made to KYC Master Direction. In the Gazette Notification G.S.R. 582(E) dated August 19, 2019, and G.S.R. 840(E) dated November 13, 2019, the Government of India has notified amendment to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. Further RBI has permitted Regulated Entities (REs) Video-based Customer Identification Process (V-CIP) as a consent-based alternate method of establishing the customer’s identity, for customer onboarding.

Consequent to the above amendment to PML rules and V-CIP following changes are made in Master Direction by the Reserve Bank of India.

In section 3, “Digital KYC” has been defined as capturing live photo of the customer and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorised officer of the Reporting Entity (RE) as per the provisions contained in the Act. In this regard, the process of carrying out the Digital KYC formalities is stipulated.

Further, in the above section “Equivalent e-document” has also been defined as an electronic equivalent of a document, issued by the issuing authority of such document with its valid digital signature including documents issued to the digital locker account of the customer as per Rule 9 of the Information Technology (Preservation and Retention of Information by Intermediaries Providing Digital Locker Facilities) Rules, 2016.

Under amended Section 16, for the purpose of Customer Due Diligence CDD) process, the customer shall submit the following:

1. the Aadhaar number where the  customer is desirous of receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 (18 of 2016); or he decides to submit his Aadhaar number voluntarily to a banking company or any reporting entity notified under the first proviso to sub-section (1) of section 11A of the PML Act; or
2.  the proof of possession of Aadhaar number where offline verification can be carried out; or
3.  the proof of possession of Aadhaar number where offline verification cannot be carried out or
4.  any Officially Valid Document (OVD) or the equivalent e-document thereof containing the details of his identity and address; and the Permanent Account Number or the equivalent e-document thereof or Form No 60 as defined in Income-tax Rules, 1962; and
5.  Such other documents including in respect of the nature of business and financial status of the client, or the equivalent e-documents thereof as may be required by the RE.

The above measures are permitted subject to where the customer has submitted Aadhaar number under paragraph (1) above to a bank or to a RE notified under the first proviso to sub-section (1) of section 11A of the PML Act, such bank or RE shall carry out authentication of the customer’s Aadhaar number using e-KYC authentication facility provided by the Unique Identification Authority of India.

Proof of possession of Aadhaar under clause (2) above where offline verification can be carried out, the RE shall carry out offline verification.

An equivalent e-document of any OVD, the RE shall verify the digital signature as per the provisions of the Information Technology Act, 2000 (21 of 2000) and any rules issues thereunder and take a live photo as specified under Annex I of the Master Direction.

Proof of possession of Aadhaar number where offline verification cannot be carried out under clause (3) above or any OVD under clause (4), the RE shall carryout verification through digital KYC as specified under Annex I of the Master Direction.

The proof must be maintained for a period not beyond such date as may be notified by the Government for a class of REs, instead of carrying out digital KYC, the RE pertaining to such class may obtain a certified copy of the proof of possession of Aadhaar number or the OVD and a recent photograph where an equivalent e-document is not submitted.

The equivalent e-document has also been permitted for accounts of non-individual customer provided a customer has his Aadhaar number under paragraph (1) above for identification and wants to provide a current address, different from the address as per the identity information available in the Central Identities Data Repository, he may give a self-declaration to that effect to the Regulated Entity.

Changes due to the introduction of Video-based Customer Identification Process (V-CIP):

In section 3 of Master Direction, the definition of V-CIP has been inserted and the process is specified in Section 18 in terms of which, REs may undertake live V-CIP, to be carried out by an official of the RE, for establishment of an account-based relationship with an individual customer, after obtaining his informed consent and shall adhere to the following stipulations:

i. The official of the Regulated Entity (RE) performing the V-CIP shall record video as well as capture photographs of the customer present for identification and obtain the identification information as below:

Banks: can use either OTP based Aadhaar e-KYC authentication or Offline Verification of Aadhaar for identification.  Banks may utilize the services of Business Correspondents (BCs) for aiding the V-CIP.

Other than Banks: REs other than banks can only carry out Offline Verification of Aadhaar for identification.

ii. RE shall capture a clear image of the PAN card to be displayed by the customer during the process, except in cases where e-PAN is provided by the customer. The PAN details shall be verified from the database of the issuing authority.

iii. The live location of the customer (Geotagging) shall be captured to ensure that the customer is physically present in India

iv. The official of the RE shall ensure that photograph of the customer in the Aadhaar/PAN details matches with the customer undertaking the V-CIP and the identification details in Aadhaar/PAN shall match with the details provided by the customer.

v. The official of the RE shall ensure that the sequence and/or type of questions during video interactions are varied in order to establish that the interactions are real-time and not pre-recorded.

vi. In case of offline verification of Aadhaar using an XML file or Aadhaar Secure QR Code, it shall be ensured that the XML file or QR code generation date is not older than 3 days from the date of carrying out V-CIP.

vii. All accounts opened through V-CIP shall be made operational only after being subject to concurrent audits, to ensure the integrity of the process.

The Business Correspondents (BCs) can facilitate the process only at the customer end and as already stated for the establishment of an account-based relationship with an individual customer due to the introduction of  V-CIP,  the official at the other end of V-CIP interaction should necessarily be a bank official. Banks shall maintain the details of the BC assisting the customer, where services of BCs are utilized. The ultimate responsibility for customer due diligence will be with the bank.