What Is KYC – Know Your Customer?
We all have heard about KYC while buying an Insurance, opening a bank account, Investing in security markets. Every Financial Institution will make your undergo the KYC process before rendering the service.Know your customer (KYC) policy is a mandatory, regulatory and legal requirement for the identification and verification of the customer’s details, by using independent and reliable information or documents.The KYC policy incorporates key elements as per the Reserve Bank of India’s and other regulators directives in 2004. The elements include customer identification procedures, customer acceptance policy, monitoring of transactions and risk management. Inshort KYC is a process where the Financial Institution identifies their clients in a manner prescribed under the PMLA act.
Why Is KYC Important For You?
The objective of the KYC is to identity theft, prevent terrorist financing, money laundering and financial fraud. KYC allows the Financial Institutions to understand the customer better and manage risks prudently. KYC collects and verifies basic details of the customers like:
- Name and authorized signatures.
- Legal status of the entity or a person.
- Identity of the beneficial controllers and owners of the account
In terms of the guidelines issued by the Reserve Bank of India (RBI) on 29th November 2004 on Know Your Customer [KYC] Standards – Anti Money Laundering [AML] Measures, all banks are required to put in place a comprehensive policy framework covering KYC Standards and AML Measures.
The Prevention of Money Laundering Act, 2002 (PMLA) which came into force from 1st July, 2005 (after “rules” under the Act were formulated and published in the Official Gazette) also requires Banks, Financial Institutions and Intermediaries to ensure that they follow certain minimum standards of KYC and AML as laid down in the Act and the “rules” framed there under.
Why Financial Institutions Follow KYC Policy?
Every financial institute, including Financial Planners and Mutual fund distributors, have to follow KYC when dealing with customers. You will have to adhere by the policy when:
- Seeking financial planning through a registered adviser
- Investing in mutual funds
- Opening some subsequent account
- Opening a bank account
- Applying for a loan or credit card
- In case of lack of enough documents with banks or financial institutes
- Changes in beneficial owners, signatories, etc.
- For some additional information
This is the KYC in banks and why KYC is important in banks. Even the modern day payment wallets also seek for your KYC for the same reasons.When you get registered with Arthayantra, we help you get your KYC registration done and it’s for free.
Details & Documents Required For KYC Include:
- Legal name and any other name change (as per identity proof)
- Correct permanent address (as per identity proof)
- Identity proof (PAN card)
- Address proof (utility bill, bank account statement, voter ID card, passport)
Note: As per SEBI rules, PAN is mandatory for registration with any SEBI-registered financial entities.Thus, KYC registration is a must to avail advice from a financial planner. If you do not want to share the required documents for KYC, the Financial Institutions will not be able to get you registered, open account and process your transaction. Hence, KYC should be the first step towards securing your financial future.