Know Your Client (KYC)
Know Your Client (KYC) means the procedure prescribed by the financial sector regulatory authorities in India (Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Insurance Regulatory Development Authority (IRDA), Pension Fund Regulatory Development Authority(PFRDA)) for identifying and verifying the Proof of Address, Proof of Identity and compliance with rules, regulations, guidelines and circulars issued by the respective regulator or any other authority towards prevention of money laundering from time to time.
All financial sector intermediaries (banks, brokers, distributors, mutual funds, insurance companies etc.) are mandated to do KYC verifications of their clients as per a prescribed procedure. A KYC Registration Agency (KRA) thereafter obtains the KYC documents of the client from the intermediary.
KRA is a company formed and registered under the Companies Act, 2013 and which has been granted a certificate of registration to function as a KRA by SEBI.
KRA is responsible for storing, safeguarding and retrieving the KYC documents and submitting them to the regulator or any other statutory authority, as and when required. KRA retains the KYC documents of the client, in electronic form for a specified period. For this, KRA maintains a secure data transmission link with other KRA(s) and with each intermediary that uploads the KYC documents on its system and relies upon this data. Any information updated about a client is disseminated by KRA to all intermediaries that avail of the services of the KRA in respect of that client. KRA prevents unauthorized access to its database and have audit of its systems and procedures at regular intervals. Further, checks are built in its system so that an intermediary can access the information only for the clients who approach him.
The financial intermediary performs the initial KYC/due diligence of the client, upload the KYC information with proper authentication on the system of the KRA, furnish the scanned images of the KYC documents to the KRA, and retain the physical KYC documents. When the client approaches another intermediary subsequently, that intermediary can verify and download the client‘s details from the system of KRA. If an intermediary receives information on change in KYC details of a client or if the same comes to the knowledge of the intermediary at any stage, then that intermediary will be responsible for uploading the updated information on the systems of KRA. An intermediary cannot use the KYC data of a client obtained from the KRA for purposes other than it is meant for; nor can it make any commercial gain by sharing the same with any third party including its affiliates or associates.
Various KYC guidelines issued by Regulators may be seen here.
KRA Regulations 2011 issued by SEBI