About KYC: Know Your Customer (KYC) is verifying a customer’s identity. KYC guidelines aim to keep banks from being used for money laundering by criminal elements. It also enables banks to understand their customers and their financial transactions better and better serve and manage risks cautiously.
Know Your Customer (KYC) verification can be accomplished quickly and cost-effectively through various channels. Paper-based, Aadhaar-based, digital, offline, video, and Central KYC are among the channels available.
Importance of KYC
KYC is a method of identifying and verifying a customer’s identity through independent and third-party sources relying on a document, data, or information source. To establish the identity of:
– The bank will collect the customer’s name, address, and recent photograph for individual customers. Similar information will be required for mutual holders and mandate holders.
– Non-individual customers – banks will collect identifying data to confirm the entity’s legal status, operating address, authorized signatories, and beneficial owners.
The nature of employment/business that the client does or expects to do and the purpose of opening an account with the bank are also required.
Purpose of KYC
The Reserve Bank of India implemented the KYC guidelines in response to the Financial Action Task Force (FATF) recommendations on anti-money laundering (AML) standards and combating terrorism financing (CFT). The Prevention of Money Laundering Act requires banks, financial institutions, and intermediaries to follow certain minimum KYC and AML standards.
KYC refresh frequency
KYC must be provided when creating a new account and refreshing an existing one. It may be required to collect increased data from current customers based on the account’s behavior, changes to the account, or fixed periodic refresh cycles relying on the customer’s risk classification. Similarly, an existing customer will be obligated to provide a new KYC for opening a new account to comply with the most current applicable KYC standards.
Inability to provide KYC
Banks can refuse to open an account or terminate an existing relationship if the minimum KYC requirements are not met. However, certain categories of customers are given some leeway if they cannot provide the required documentation at the time of account opening.