What is KYC: Meaning, Types, and Importance

KYC means Know Your Customer, and KYC is marked as a standard in the investment industry to establish a long-lasting relationship with clients. KYC includes the clients’ details, financial position, and tolerance to any financial risk, and KYC ensures that the financial advisor and the client remain safe.

When the clients share their KYC details with the financial advisor, he knows which investment is best suited to its client. The financial advisor can decide to include the schemes that match the client’s portfolio.

KYC includes:

  • Risk management
  • Transaction monitoring
  • Customer acceptance policy

Features of KYC

  • KYC is an ethical and essential requirement while opening an account in the bank. KYC was implemented under two rules of the Financial Industry Regulatory Authority. These rules were Rule 2090 (know your customer) and rule 2111 (suitability).
  • The implementation of these rules was to protect the broker-dealer–client rights for any investment.
  • KYC is followed by the banks and investment agencies of different countries worldwide. In India, the KYC is done according to the regulations of the Reserve Bank of India.
  • In India, opening a Demat account, a bank account, and a trading account is prohibited without fulfilling the KYC requirements.

The KYC information includes

  • Name, address, and the financial history of the account holder. KYC documentation is straightforward and takes only a few minutes to get done with it. The list of documents required for the KYC is given below:
  • Identity proof of the account holder. This identity proof can be the Adhaar number, driving license number, passport, voter ID, etc.
  • A photostat of a PAN card with a passport size photograph.
  • Any document issued by the state or center government includes the photo identity of the applicant.
  • An identity card is also required, issued by a bank or financial institute to the applicant.
  • If the applicant is college-going, then the student identity card is issued to the student by the college or university.
  • If the applicant is already using a debit or credit card, then the name and address of the card bearer may be used as identity proof.

Documents required for the address proof

  • The address verification, voter ID card, Adhaar card, and driving license may be asked for.
  • One can give the address verification through the gas bill, telephone, and electricity bill. But the verification document of bills must be recent.
  • In some cases, bank managers, notary public, gazetted officers, and government representatives may issue the address proof of the applicant individual.
  • Identity card issued by the financial institutions, central and state government, and public sector undertaking is also applicable.
  • Identity cards issued by the universities or colleges which include the address are also valid.

There are two types of KYC verifications.

KYC verification by the person itself:

The applicant itself does the verification of KYC by the account applicant. The person does this by going to the bank or mutual fund office and doing the adhaar verification by biometrics. The agent can also do this type of KYC verification by sending the executive to the home or office of the applicant and doing the KYC.

KYC verification based on Adhaar card:

The adhaar card verification of the person is very easy. The person only needs to attach the Adhaar card with the KYC information form. The executive can verify the adhaar card and its details from the given adhaar card number. For opening the new bank account, the KYC verification is mainly done with the Adhaar card of the applicant.

KYC rules, standards and cryptocurrency

The 2090 rule :

According to rule 2090, every bank must have essential information about its client before opening an account. The KYC information includes all the information essential to handle the customer’s account and provide the best service to the account holder. KYC is necessary so that the dealer knows about the second person in authority for the account other than the account holder.

The suitability rule:

This rule is about the recommendations offered to the client by the broker or dealer. This rule states that any recommendations provided to the client must be according to the client’s financial condition. According to this rule, the broker or dealer must have complete knowledge of customers’ financial condition and profile before deciding on the securities’ exchange, sale, and purchase for the client.

Standards of KYC

KYC guidelines help individual customers and businesses from getting trapped in frauds like money laundering. KYC helps the customers to know about the risk involved in the financial dealing ad ways to manage them. The KYC policy of banks and other investment companies applies the following points:

  • Risk management
  • Monitoring the transactions done through the registered account
  • Identification of the customer through various valid verifications
  • Acceptance policy by the customer

KYC in cryptocurrency

Cryptocurrency has emerged as a powerful means of exchange and online money trading. In contrast, cryptocurrency is highly involved in money laundering cases, and this is why many government regulatory bodies plan to impose the KYC for the cryptocurrency exchange. The crypto market may need to verify its customers just like the other financial institutes in the upcoming time.

Frequently asked questions

1. What documents are required for the KYC verification?

One can provide one or two of the given documents to verify KYC.

  • Adhaar card
  • Driving license
  • Pan card
  • NREGA card

2. How to complete KYC for banks in India?

The KYC can be done online by following the given procedure:

  • Visit the bank’s official website, for which you need to complete the KYC.
  • Log in to your bank account and go to the KYC information icon.
  • Upload all the details asked as verified in your Adhaar card or driving license.
  • Enter your mobile number. An OTP will come, and you need to submit it too to verify your mobile number.
  • Submit the KYC application.
  • After checking all the submitted details, the bank will send a confirmation message of KYC on your registered mobile number.

Leave a Reply

Your email address will not be published. Required fields are marked *