Customer identification is the most important component of KYC (Know Your Customer), which is now a key aspect in the fight against financial crime and money laundering.
Financial institutions work with extremely high stakes due to worldwide anti-money laundering (AML) and counter-terrorist financing (CFT) regulations. As a result, banks, financial institutions, and intermediaries are required to meet certain basic KYC and AML/CFT standards under the Prevention of Money Laundering Act.
Since 2004, the Reserve Bank of India has mandated that all Indian financial institutions confirm the identity and address of every customer that conducts business with them.
The RBI thus made the KYC process the only method of verification.
This article will cover all you need to know about KYC and discuss its significance while applying for a Fixed Deposit. Let’s start now.
What is KYC?
KYC’s full form is ‘Know Your Customer’. When a client opens an account, KYC is the mandatory procedure to confirm the identity. Banks need to confirm that their customers are who they say they are.
Banks may refuse to open a Fixed Deposit account or terminate a business relationship when a client does not comply with their KYC criteria.
KYC paperwork is useful for a financial institution to confirm and verify a customer’s legitimacy. The customer must provide all KYC documentation before investing in different products. The RBI requires all financial institutions to do the KYC procedure on every customer before permitting them to conduct any financial activities. This is a quick and easy one-time process, regardless of whether the customer uses online or offline KYC verification.
KYC Refreshes Frequency
KYC must be submitted when opening a new Fixed Deposit account and if it has to be updated afterwards. Existing customers may need to provide more information depending on the account’s activity, any changes to the account, or during predetermined periodic refresh cycles depending on the customer’s risk category. An existing customer will also be asked to supply updated KYC when opening a new Fixed Deposit account to comply with the current standards.
What happens if KYC documents are not provided?
If the minimal KYC criteria are not provided, banks are entitled to refuse to open a new Fixed Deposit account or terminate the existing one. However, certain client categories who cannot present the required papers at the account establishment are given some exceptions.
Why is the KYC process important in India?
KYC is crucial since it protects financial institutions and controls unlawful activity. Many customers use financial services like investing in Fixed Deposits, mutual funds and trading. With KYC, banks can confirm an entity’s legal status, which includes comparing operating addresses with customers’ addresses and confirming the names of their beneficial owners and authorised signatures. The KYC documentation you provide to the bank or NBFC while opening a Fixed Deposit (FD) account will speed up the application process.
All the steps required to evaluate, and monitor risks related to the customer are included in the KYC protocols outlined by banks. These client-onboarding protocols support the identification and prevention of illegal corruption, money laundering, and terrorism financing.
The KYC procedure also asks the customer about their line of work and the type of business they do, which are essential information for confirming their legitimacy as a person or entity.
Banks are in charge of ensuring KYC compliance. Heavy fines are imposed if compliance is not maintained.
Types of KYC
There are two different kinds of KYC verification procedures. Both are equally good; choosing one over the other depends on personal preference. Here are both of them:
- Online, Aadhar-based KYC
- Offline, in-person KYC
You can submit any one of the following documents for ID & Address Proof.
|ID PROOFS||ADDRESS PROOFS|
|1. Passport||1. Passport|
|2. PAN Card||2. Driving License|
|3. Driving License||3. Voter ID|
|4. Voter Id||4. Job Card by NREGA|
|5. Job Card by NREGA||5. Aadhar Card|
|6. Aadhar Card||6. Pension Payment order|
|7. Property/Municipal Tax Receipt|
|8. Savings Bank Account Statement|
|9. Utility Bills|
In essence, KYC is necessary before a customer conducts any financial transaction. The customer provides information about their identification, address, and financial background to the bank conducting the check after verification. This information can help the bank ensure that the client’s investment in Fixed Deposit was not made to engage in money laundering. Understanding what KYC is and its importance while applying for a Fixed Deposit becomes imperative to ensure there are no hassles during and after approval.