The Securities and Exchange Board of India (Sebi) has issued a few notifications standardising the digital KYC (Know Your Client) norms. In its recent release, the regulator said that intermediaries don’t need to verify the identity and address documents that clients submit, physically. Instead, intermediaries can use Digilocker to verify the driving license, PAN or Aadhaar.
Many brokers and mutual fund platforms have been doing digital KYC. But each adopted practice that they thought were the best. “Intermediaries like stockbrokers have been doing digital KYC. But there was a confusion of what can be done and what cannot be done. The regulator took feedback from intermediaries on their current practice and issued norms standardising how the KYC should be done," said Venu Madhav, chief operating officer, Zerodha, an online broking platform.
There have been a series of development in this regard. On 22 April, the Ministry of Finance (MoF) issued a notification allowing nine entities to undertake Aadhaar authentication or Aadhaar-based eKYC. These include BSE and National Stock Exchange, Central Depository Services (India) Limited, CDSL Ventures Limited, CAMS Investor Services Private Limited and Link Intime India Pvt. Ltd.
Following the MoF’s circular, Sebi came up with standardisation norms for digital KYC on 24 April. “This notification talked about processes that need to be followed for digital KYC," said Madhav. For example, mobile and email can be verified through a one-time password. Aadhaar can be done through the Unique Identification Authority of India’s (UIDAI) authentication and verification mechanism. Permanent account number (PAN) can be done through the income tax department’s database. The bank account verification can be done by a mechanism called “penny drop", wherein one rupee is deposited in the applicant’s bank account to verify the details.
Sebi has come up with another notification talking about the use of Digilocker for verification. It also talked about the validity of digital signature an eSign, which is an online electronic signature service that can facilitate an Aadhaar holder to forward the document after digitally signing it. The regulator has allowed intermediaries to use an app for KYC and video verification. “The App shall facilitate taking a photograph, scanning, acceptance of officially valid documents (OVD) through Digilocker, end-to-end encrypted live audio-visual interaction with the customer," said the recent notification.