What is KYC?

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What is KYC?

What is KYC?

What is KYC?

KYC means “Know Your Customer”. It is a process by which banks or NBFCs obtain information about the identity and address of the customers. 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.

This process helps to ensure that banks’ services are not misused. The elements include customer identification procedures, customer acceptance policy, monitoring of transactions and risk management. The KYC procedure is to be completed by the banks while offering loans or opening accounts and also periodically update the same. KYC has also been extended to investment in Insurance, Mutual fund and the capital market too. KYC is a process where the Financial Institution identifies its clients in a manner prescribed under the PMLA act.

  1. What is the objective of KYC?

The objective of the KYC is to prevent identity theft, terrorist financing, money laundering and financial fraud. KYC allows Financial Institutions to understand the customer better and manage risks prudently.

KYC collects and verifies the basic details of the customers like:

  • The legal status of the entity or a person
  • Name and authorized signatures
  • Identity of the beneficial controllers and owners of the entity
  1. What are the regulatory and legal requirements of KYC?

Reserve Bank of India (RBI) issued guidelines on 29th November 2004 on Know Your Customer [KYC] Standards, Anti Money Laundering [AML] Measures and 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 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 thereunder.

  1. What types of Non-individual entities are there?

Under the legal framework in India, it has been recognized 6 types Non-individual or Non-person entities as a legal person:

  • Partnership
  • Limited Liability Partnership (LLP)
  • Private & Public Limited Company
  • Trust & Society
  • Association of Person & Body of Individuals
  • Hindu Undivided Family (HUF)
  1. What are the documents constitute as KYC of an entity?

The KYC of an entity is dependent on the constitution of the entity. PAN copy is a common document for all the legal entities. Other than PAN other documents dependent on the constitution of the entity.

  1. What are the KYC documents for Partnership firm?

For a partnership firm the KYC documents required are:

  • Partnership Deed along with old deeds
  • PAN of the firm
  • GST Registration Certificate
  • Address Proof in the name of the firm (Telephone Bill)
  • What are the KYC documents for a Private Limited Company?
  • Certificate of Incorporation
  • Memorandum of Association
  • Memorandum of Article
  • Latest list of Shareholders and Directors along with DIN
  • PAN of the company
  • GST Registration Certificate
  • Address Proof in the name of the company (Telephone Bill)

 

  1. What are the KYC documents for a Public Limited Company?

The KYC documents needed for a Public Limited Company are:

  • Certificate of Incorporation
  • Certificate of Commencement of Business (in case of a limited company)
  • Memorandum of Association
  • Memorandum of Article
  • Latest list of Shareholders and Directors along with DIN
  • PAN of the company
  • GST Registration Certificate
  • Address Proof in the name of the company (Telephone Bill)
  • What are the KYC documents for LLP?
  • Certificate of Incorporation
  • Deed of Partnership
  • Latest list of designated partners along with DPIN
  • PAN of the LLP
  • GST Registration Certificate
  • Address Proof in the name of the LLP (Telephone Bill)
  1. What are the KYC documents for a Trust or Society?

The KYC documents needed for a Trust or a Society are:

  • Registration Certificate with any state regulatory authority or Charity Commissioner (for charitable trusts)
  • Trust Deed or By-Laws
  • Income Tax registration under section 12A
  • Latest list of Trustees / Governing Body Members / Committee Members
  • Address Proof in the name of the Trust / Society (Telephone Bill)

 

  1. What are the KYC documents for an AOP / BOL?

The KYC documents for an AOP / BOL are:

  • Latest AoP/ BoI agreement
  • Entity Proof in the name of AoP/ BoI
  • PAN of the AoP / BoI
  • Address Proof in the name of AoP/ BoI (Telephone Bill)
  • What are the KYC documents for a HUF?
  • PAN card in the name of HUF and Karta
  • HUF declaration signed by the Karta and all coparceners
  • Address proof in the name of HUF / Karta

 

  1. What are the KYC documents needed for an individual?

KYC documents are divided into 2 parts:

  • Proof of Identity
  • Proof of Address

Proof of Identity documents are:

  • PAN Card
  • Valid Passport / Valid Driving License / E-Aadhaar letter downloaded from UIDAI site / Aadhaar card issued by the government of India / Election Card /Voter’s ID card
  • Identity card with photo, issued by Central / State Government and its Departments or Statutory / Regulatory Authorities
  • Identity cards issued by Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions
  • Identity cards issued Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc. to their Members

 

Proof of Address:

  • Valid Passport / Valid Driving License / E-Aadhaar letter downloaded from UIDAI site / Aadhaar card issued by the government of India / Election Card /Voter’s ID card
  • Utility bills like Telephone Bill or postpaid mobile Bill, Electricity bill or Gas bill – Not more than 3 months old
  • Bank Account Statement/Passbook — Not more than 3 months old
  • Proof of address issued by Scheduled Commercial Banks / Scheduled Co-Operative Bank / Multinational Foreign Banks
  • The proof of address in the name of the spouse or parent may be accepted

 

  1. What is the number of ways to comply with KYC?

KYC can be complied with in two different ways:

– Online

– Offline

  1. How to Do KYC Online?

There are two methods to do KYC online – Aadhaar OTP and Aadhaar-based Biometric KYC. Aadhaar OTP allows one to get the KYC done easily in minutes whereas, in Aadhaar-based Biometric KYC, one has to be assisted by an executive or by visiting the KYC asking office for biometric verification. This method of KYC compliance is mostly adopted while opening a bank account, investment in a mutual fund or insurance, or getting a mobile telephone connection.

  1. What is offline KYC compliance?

Where online KYC compliance is not in place, KYC is collected offline. Most of the loan is processed with offline KYC. A general rule is followed while submitting offline KYC documents that, each document is photocopied on A4 size paper and self-attested. It is advisable to write the purpose for which the KYC document is submitted with a date of submission.

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