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How A Central KYC Registry Will Ease Your Financial Life

14/02/2017 2:57 PM IST | Updated 15/02/2017 9:00 AM IST
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Abhinav Kumar, a KPO executive, received a hefty bonus this year. He decided to invest part of it in mutual fund schemes and the rest on a term insurance plan and fixed deposits. To his dismay, he was asked to submit the same set of documents (namely, self-attested copies of PAN card and address proof) for investing in mutual funds, fixed deposits as well as for buying term insurance plan. Later on, he decided to open a demat account and to his surprise, he didn't have to submit documents again. The reason being that SEBI follows the unified KYC regime for investments—once a person is KYC verified, he or she doesn't have to fill up multiple forms or submit documents all over again for making additional or fresh investments in mutual funds or stock market.

So, can this unified KYC regime of SEBI be replicated across financial sectors? Indeed, there is a workable solution—maintaining a central repository of all KYC documents that can be accessed by all financial institutions whenever required.

Once the concept of CYKCR comes into full-scale operation, a single KYC will be sufficient to avail the entire spectrum of financial services.

Before I go on about explaining how the Central KYC Registry (CKYCR) can ease our financial life, let's first understand why KYC is important. The main objective behind introducing KYC norms was to prevent identity theft, financial fraud, money laundering and terrorist financing. Unfortunately, the current process for KYC becomes a big bottleneck for simple financial products for normal consumers like you and me.

Currently, each sectoral regulator—Reserve Bank of India (RBI) for banks and NBFCs, Securities and Exchange Board of India (SEBI) for AMCs, Insurance Regulatory and Development Authority (IRDAI) for insurance companies, Forward Markets Commission (FMC), and Pension Funds Regulatory and Development Authority (PFRDA)—have their own KYC policies. As each regulator collects and stores data separately, maintaining a complete picture of a client's financial history becomes difficult.

Having realised the futility of having multiple KYCs, the Union Finance Minister announced the formation of a Central Know Your Customer (KYC) repository in the Union Budget 2012-13 for receiving, storing and retrieving KYC records in the digital form. It further issued a notification in December 2015 authorising the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) as the CKYCR for the entire financial sector. The objective was simple—maintain all consumer-centric information under one platform so that it can be conveniently accessed by all financial institutions or intermediaries on a need basis.

Accordingly, the three major market regulators—RBI, SEBI and IRDAI—asked all financial institutions and intermediaries under their control to upload KYC documents of new accounts to CERSAI. This will save the financial institutions from repeating the KYC documentation for the same clients and thus reduce the cost and turnaround time of opening accounts. At a later stage, even the older KYC records will be moved to CERSAI.

How does it help consumers?

Once the concept of CYKCR comes into full-scale operation, a single KYC will be sufficient to avail the entire spectrum of financial services. Customers will be provided a unique identifier, which can be quoted every time they wish to buy any financial product.

An easier KYC documentation process will speed up the process of financial inclusion and spread investment culture among the masses.

Let me explain this to you with an example. Let's assume that you open savings account with a bank. As soon as you apply for this, your KYC data will be sent by that bank to CERSAI and an identifier will be provided to you. Now, if you plan to open an alternative account with another bank, your second bank can directly fetch your KYC data from CERSAI by quoting your unique identifier. The same process can be followed while opening demat accounts or for buying insurance policies and mutual funds, irrespective of the fact that these products come under the ambit of different financial regulators. So, all you need to do is submit your documents once and they will be synced with all your investments without any hassle.

However, you may have to update your records in case of any changes in protocol (e.g. change of residence or contact details etc). You just have to update your document with one financial service provider and it will be automatically synced with the rest.

Things can get better with India Stack

Things will further improve once the digital signature and digital record layers of the India Stack program are implemented. It will allow you to open new accounts sitting from the comfort of your home or office, without even signing the physical copies of the account-opening forms or getting photocopies of your KYC documents or uploading your original documents; KYC documentation will be truly digital.

CKYCR will go a long way in increasing the ease of saving and investing for an average Indian. It will also decrease the cost of providing financial services.

An easier KYC documentation process will speed up the process of financial inclusion and spread investment culture among the masses.

Implementation of the CKYCR project can be a bit challenging, especially in case of non-individual accounts, such as partnerships, companies or societies, where authorised signatories may change frequently. If the changes in the accounts are not immediately reflected, other banks or financial institutions would have access to outdated information. This can hamper the risk management system of banks and banking customers. Also, financial institutions may also have issues managing customer documents, given that the requirements of each category of investment or regulators may vary.

Having said that, I think CKYCR will go a long way in increasing the ease of saving and investing for an average Indian. It will also decrease the cost of providing financial services. However, the success of the CKYCR project will solely depend on how diligently banks and other financial institutions update their clients' details with CERSAI.

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