What is uniform KYC? From Stocks to Bank Accounts, KYC Rules To Change - All You Need To Know

Uniform KYC rules: In today's financial world, submitting your Know Your Customer (KYC) details has become unavoidable, whether you're opening a bank account, investing in mutual funds, or purchasing life insurance. However, the repetitive nature of this process can be quite burdensome. To remove this hassle and streamline procedures, the Financial Stability and Development Council (FSDC) has proposed the adoption of uniform KYC rules.

What is Uniform KYC?

Uniform KYC, as proposed by the FSDC under the guidance of Finance Minister Nirmala Sitharaman, aims to standardise the KYC process across the financial sector. This means that your KYC records would be easily shareable and recognised by different financial institutions, eliminating the need for repetitive submissions.

Johnson K Jose, an Executive VP at Federal Bank, highlights that the primary goal is to ensure interoperability of KYC records. In simpler terms, customers would only need to provide their KYC details once and use them across various financial services.

Current KYC Norms

KYC | Photo: Unsplash/Representational image

KYC essentially involves confirming a customer's identity and address before they can access regulated financial products. Currently, customers are required to furnish KYC details each time they engage in a financial transaction, whether it's opening a bank account, investing in stocks or mutual funds, or obtaining insurance. Moreover, these details may need updating periodically.

Centralised KYC System

Although the Central KYC Records Registry (CKYCR) was established in 2016 to centralise KYC records for investments in capital markets, it doesn't cover all financial sectors. For instance, if you complete KYC through SEBI for investments in capital markets, you're spared from repeating the process for new investments in those markets. However, this exemption doesn't apply to activities like opening a bank account or purchasing life insurance.

The government's proposal seeks to address this limitation by mandating the submission of KYC details to a central repository when opening accounts. Upon registration, customers receive a unique CKYC identifier, simplifying the process of retrieving KYC details for subsequent transactions with different entities.

Benefits of Uniform KYC

Uniform KYC promises several advantages for both customers and financial intermediaries. Customers will no longer endure the hassle of multiple KYC processes, enabling them to establish relationships with various institutions more efficiently. This streamlined approach not only saves time but also enhances security.

For financial intermediaries, accessing KYC information from a centralised repository like CKYCR streamlines onboarding processes reduces costs, and promotes digitalisation. Additionally, it aids in preventing illicit financial activities by ensuring data security and compliance with regulatory standards.

Risk-Based KYC Approach

In her Budget 2024 speech, Finance Minister Nirmala Sitharaman proposed a shift towards a "risk-based" KYC approach instead of the traditional "one-size-fits-all" method. Under this approach, the depth of information collected during the KYC process varies based on the customer's risk profile. This tailored approach is expected to enhance KYC record sharing across the financial sector, fostering greater efficiency and security.

The adoption of uniform KYC rules signifies a significant step towards simplifying financial transactions and enhancing security measures in the digital age. While challenges such as privacy and security concerns persist, the potential benefits far outweigh the risks, paving the way for a more efficient and secure financial ecosystem.