Know Your Client (KYC) requirement has become a buzzword.
Wherever you go, KYC documentation follows.
Now, the question is from where has this requirement popped up?
Well, let me tell you when Government makes laws, there is some part of the world which is ready to hack the system and distort the regulatory system of the country.
So is the same in case of banking and financial institutions.
The invaders of the system had and are continuously resorting to unlawful means by mis-utilizing the banking services.
In order to prevent money laundering, fraudulent practices, prevent fraud funding for terrorism and as a mandatory compliance requirement, Reserve Bank of India (RBI) has come up with such documentation requirements.
Let us understand this with the help of an example:
Mr. Kapoor wanted to open a bank account urgently.
Read More: How to Open a Bank Account?
He went to the bank and asked them to open a bank account for him.
The agent in the bank asked Mr. Kapoor to fill in a form and to comply with the KYC requirements.
Mr. Kapoor was unaware of the KYC requirements and asked agent the following questions:
What does this requirement mean to a prospective customer?
The agent explained that when a person opens a bank account, he is required to submit certain documents as prescribed by law for meeting the KYC requirements.
- They require Proof of Identity (POI) and Proof of Address (POA) as the two mandatory KYC documents.
- The agent also gave the lists of instances which served the purpose. For instance:
- POA — Your electricity bill or a BSNL phone bill, not later than 3 months old.
- POI – Your PAN Card/ Voter ID Card
- At the time of submitting the copy of the documents required, the prospective customer is also required to show the originals for the verification.
- This information also needs to be updated regularly and in case of any changes.
Since 2014, RBI has eased the KYC requirements for opening a Bank Account in several aspects.
One such important aspect is allowing a single document to act as both POA and POI.
Examples of such documents include: Adhaar Card, PAN Card, Voter Card,Passport.
What if he does not comply with the KYC requirements or does not update the details mentioned therein?
As mentioned that KYC requirement is mandatory, unless the documents are submitted and verified by the agent, the client will not be able to open the bank account.
Also, in case the existing account holder does not cooperate with the bank in this regard, the bank may close the account holder’s account, after giving due notice and explaining the reasons thereto.
Please note that always make a correct disclosure of documents required so as to prevent any delay in processing of your documentation procedure.
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After getting all the responses to the questions raised, Mr. Kapoor submitted the documents accordingly and opened the bank account as desired.
KYC documentation is followed not only as a standard banking practice globally but has also been made a mandatory legal and regulatory requirement by RBI.
By imposing KYC norms; RBI is able to monitor the banking services provided to the customers.
Apart from banks, you are also required to submit KYC documents to the nonbanking financial sector and to other financial institutions.
KYC is more about building relations with your bank than a mere compliance requirement.
So next time when you open a bank account, you will be well aware of the procedure that you have to go through in terms of KYC requirements.
Hope we have been able to convey the essence of a KYC document. In case of any more reading on related topics, please feel free to suggest.