RBI on a review amended KYC Master Direction on November 06, 2024. “The amendment has been necessitated to (a) align the instructions with the recent amendments carried out in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 vide Gazette Notification dated July 19, 2024, (b) incorporate instructions in terms of the corrigendum dated April 22, 2024 issued by the Government of India to the Order dated February 2, 2021, on the ‘Procedure for implementation of Section 51A of the Unlawful Activities (Prevention) Act, 1967’, and (c) revise certain existing instructions,” said RBI.
The changes are as follows:
1. Customer Acceptance Policy
Paragraph 10(f) of the KYC Master Direction is amended to read as follows: “Regulated Entities (Res) shall apply the CDD procedure at the UCIC level”.
UCIC level refers to the Unique Customer Identification Code (UCIC) level, which is a level at which customer due diligence (CDD) can be completed. The Reserve Bank of India (RBI) has updated its KYC norms to allow CDD to be completed at the UCIC level. This update is intended to simplify the process for existing customers and make it easier for them to access new services from the same institution.
Thus, if an existing KYC-compliant customer of a RE desires to open another account or avail of any other product or service from the same RE, there shall be no need for a fresh CDD exercise as far as identification of the customer is concerned.
CDD Procedure is also followed for all the joint account holders while opening a joint account. Circumstances in which, a customer is permitted to act on behalf of another person/entity, are clearly spelled out.
2. High risk accounts:
The ‘Explanation’ that “High-risk accounts have to be subjected to more intensified monitoring” applies to sub-paragraphs (a) and (b) of paragraph 37 and accordingly, the ‘Explanation’ has been shifted. This change aims to ensure that the enhanced monitoring protocols for high-risk accounts are applied consistently.
3. Paragraph 38 – Updation/ Periodic Updation of KYC
To provide better clarity, the phrase ‘updation’ has been inserted with the phrase ‘periodic updation’ in clauses (ii) and (iv) of sub-paragraph (a); and clauses (iii) and (iv) of sub-paragraph (c) of paragraph 38.
KYC requires banks and advisors to:
- Identify customers and beneficial owners of businesses
- Understand the nature and purpose of customer relationships
- Review customer accounts for suspicious or illegal activity
- Ensure the accuracy of customer accounts
4. Paragraph 56 of KYC MD: CDD Procedure and sharing KYC information:
Amendment to Paragraph 56(h) of the Master Direction: CDD Procedure and sharing KYC information with Central KYC Records Registry (CKYCR)
To ensure that all KYC records are incrementally uploaded to CKYCR, REs shall upload/update the KYC data about accounts of individual customers and LEs opened before the above-mentioned dates as per clauses (e) and (f), respectively, at the time of periodic updation as specified in paragraph 38 of this Master Direction, or earlier, when the updated KYC information is obtained/received from the customer. Also, whenever the RE obtains additional or updated information from any customer as per clause (j) below in this paragraph or Rule 9(1C) of the PML Rules, the RE shall within seven days or within such period as may be notified by the Central Government, furnish the updated information to CKYCR, which shall update the KYC records of the existing customer in CKYCR. CKYCR shall thereafter inform electronically all the reporting entities who have dealt with the concerned customer regarding updation of KYC record of the said customer. Once CKYCR informs an RE regarding an update in the KYC record of an existing customer, the RE shall retrieve the updated KYC records from CKYCR and update the KYC record maintained by the RE.
5. Amendment to Paragraph 56(j) of the Master Direction:
Establishing an account-based relationship, updation/ periodic updation or verification of the identity of a customer:
RE shall seek the KYC Identifier from the customer or retrieve the KYC Identifier, if available, from the CKYCR and proceed to obtain KYC records online by using such KYC Identifier and shall not require a customer to submit the same KYC records or information or any other additional identification documents or details, unless–there is a change in the information of the customer as existing in the records of CKYCR, or the KYC record or information retrieved is incomplete or is not as per the current applicable KYC norms, or the validity period of downloaded documents has lapsed, or the RE considers it necessary to verify the identity or address (including current address) of the customer, or to perform enhanced due diligence or to build an appropriate risk profile of the customer.
6. Internal cross-reference:
The provisions of Master Direction may henceforth be read as ‘paragraph’ instead of ‘section’. All internal cross-references to the ‘section’ in the Master Direction on KYC have been replaced to be read as ‘paragraph’.
KYC, or Know Your Customer, is the essential process used by banks and other financial institutions to verify the identity of individuals. This is crucial in preventing illegal activities like money laundering and terrorist financing, ultimately safeguarding both the institution and the client.
Digital KYC involves capturing a live photo of the customer alongside an officially recognized document or proof of possession of an Aadhaar. This process may be necessary in situations where offline verification is not feasible. The location of where the live photo is taken is also recorded, including the latitude and longitude coordinates, by an authorized officer of the institution in accordance with legal requirements outlined in the Act.
