The KYC guidelines have been put in place by the Reserve Bank of India in the context of the recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT).
The Prevention of Money Laundering Act requires banks, financial institutions and intermediaries to ensure that they follow certain minimum standard of KYC and AML.
KYC is to be provided at the time of opening a new account as well as refresh. It may be necessary to obtain additional information from existing customers based on the conduct of the account, where there are changes to the account or at fixed periodic refresh cycles based on the risk categorization of the customer. Similarly, an existing customer will be required to provide fresh KYC for new account opening to adhere to the latest applicable KYC standards.
Banks are entitled to refuse to open an account or discontinue an existing relationship if there is failure to meet the minimum KYC requirements.
However, there is flexibility provided to certain categories of customer who are unable to provide the necessary document at the time of account opening.
To verify the above details, RBI has issued a list of documents which can be submitted to banks and FIs for further due diligence and acceptance.
The KYC process is lengthy and time-consuming since it involves a lot of documentation, compliance checks, and verifications. Often, this can take 2-3 weeks to complete and also entails an enormous cost to banks and FIs.
Although it is a legal mandate for banks and FIs, KYC also creates a miserable experience for customers. Over the year banks and FIs have adopted technology to automate KYC processes. Ideally, minimal customer interaction and contact is needed during KYC, as most data are available on public domain. Asking the customer to submit the same data will only delay the process.