KYC, or Know Your Customer, is the process in which a regulated entity, such as a bank, a non banking finance company (NBFC) or an intermediary registered with SEBI is the statutory regulator of India's securities market, with the legal duty to protect investors and to promote and regulate that market. Read the full meaning of SEBI, collects and verifies a customer's identity, address, nature of business and financial status before opening an account, and keeps this information current through periodic updates.
For a first time investor wondering what is KYC in practice, it is a check that is done when an account based relationship begins, that is, when any type of account is opened with the entity. Every regulated entity needs a policy for this approved by its Board, and the check follows that policy.
Documents, risk ratings and the KIN record
Banks and NBFCs follow the KYC rules of the RBI, while intermediaries registered with SEBI follow its framework through KYC Registration Agencies (KRAs).
Identity is shown through Officially Valid Documents, such as a passport, driving licence or Voter ID. Each customer is rated low, medium or high risk, and high risk customers face enhanced due diligence. Records are updated at least every 2, 8 and 10 years for high, medium and low risk customers.
The Central KYC Records Registry (CKYCR), run by the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), gives each record a 14 digit KYC Identifier (KIN). KRAs upload verified investor data to it.
For an individual opening a mutual fund account with Rs 10,000, the fund house can download the existing record using the KIN, with consent, so documents are not submitted again.
Why KYC is required, and e-KYC as a method
Without completed KYC, an account cannot be opened or operated. Once a record exists, it can be reused, so investors need not submit same documents again.
e-KYC is not a separate or lighter requirement. It is a method of doing KYC, for example through an Aadhaar OTP. An account opened this way without meeting the customer cannot run beyond one year unless full or video based identification (V-CIP) is done.