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Photo: iStock
Photo: iStock

Standardized digital KYC process beats lockdown woes of investors

The finance ministry has allowed nine entities to undertake Aadhaar-based eKYC

For some time now, stockbrokers and online mutual fund platforms have been using digital KYC (know your client). But no two organizations followed the same procedure. Some mutual fund platforms, for example, allowed users to record a video to replace in-person verification (IPV), while most stockbrokers sent a representative to the client’s house or office to get IPV done.

In the wake of the lockdown due to covid-19, the government and capital markets regulator Securities and Exchange Board of India (Sebi) have now moved to ease KYC norms and standardize the process. “Intermediaries have been doing digital KYC for years now. But there was confusion about what can be done and what can’t be done. Sebi took feedback from intermediaries on their current practices and issued norms standardizing how digital KYC should be done," said Venu Madhav, chief operating officer, Zerodha, an online broking platform.

Aadhaar-based KYC

The ministry of finance issued a gazetted notification on 22 April to make the KYC process entirely digital for transactions through some entities.

According to the notification, nine entities can now undertake Aadhaar authentication or Aadhaar-based eKYC. The entities include BSE Ltd and National Stock Exchange, Central Depository Services (India) Ltd, CDSL Ventures Ltd, CAMS Investor Services Pvt. Ltd and Link Intime India Pvt. Ltd.

The notification said that the central government allowed them on being satisfied that the nine entities comply with standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016.

Online KYC

After the finance ministry’s notification, Sebi came up with a clarification on the KYC process and the use of technology for it. The regulator allowed many online services that registered intermediaries can use for KYC. Here are some.

Aadhaar eSign: This is a government-prescribed method of digitally signing a document using Aadhaar. Legally, it is considered equivalent to that of wet signature (physical signature using a pen). It is done using a one-time password.

Digilocker: Earlier, an intermediary was required to match the digital copies of documents with the originals. Sebi has now allowed verification of documents using the central government’s Digilocker facility. Users can store digital copies of driving licence, Permanent Account Number (PAN), Aadhaar, vehicle registration, mark sheets, ration card and other documents in a Digilocker. Documents stored in Digilocker are considered equivalent to the original ones (read more).

IPV: Intermediaries can do IPV through their apps. For this, there needs to be an authorized official of the intermediary on the video with the customer. During the process, the intermediary’s representative will ask random questions and investors would need to display their documents to the representative.

The process

Sebi has allowed intermediaries to carry out KYC online or using their apps. Intermediaries can capture details such as name, photograph, address, mobile number, email, bank details and PAN online. Users are also allowed to sign a cancelled cheque and upload a scanned copy of it. Video IPV has made things easier.

Mobile and email verification are done via OTP, Aadhaar verification through UIDAI and PAN verification 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. Other documents, such as driving licence, can be verified using Digilocker. Once all the verification is done, the customer or investor can take a print out, sign the documents, scan them and send it to the intermediaries. The other way is to put a cropped signature on the KYC form and submit it for eSign.

Investing online is now easy even amid a lockdown.

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