Policy Update: Finance Ministry introduces digital KYC under PMLA

Terms of use

Terms of Use

The use of this site and the content contained therein is governed by the Terms of Use. When you use this site you acknowledge that you have read the Terms of Use and that you accept and will be bound by the terms hereof and such terms as may be modified from time to time.

All text, graphics, audio, design and other works on the site are the copyrighted works of nasscom unless otherwise indicated. All rights reserved.
Content on the site is for personal use only and may be downloaded provided the material is kept intact and there is no violation of the copyrights, trademarks, and other proprietary rights. Any alteration of the material or use of the material contained in the site for any other purpose is a violation of the copyright of nasscom and / or its affiliates or associates or of its third-party information providers. This material cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for non-personal use without obtaining the prior permission from nasscom.
The nasscom Members login is for the reference of only registered nasscom Member Companies.
nasscom reserves the right to modify the terms of use of any service without any liability. nasscom reserves the right to take all measures necessary to prevent access to any service or termination of service if the terms of use are not complied with or are contravened or there is any violation of copyright, trademark or other proprietary right.
From time to time nasscom may supplement these terms of use with additional terms pertaining to specific content (additional terms). Such additional terms are hereby incorporated by reference into these Terms of Use.

Disclaimer

The Company information provided on the nasscom web site is as per data collected by companies. nasscom is not liable on the authenticity of such data.
nasscom has exercised due diligence in checking the correctness and authenticity of the information contained in the site, but nasscom or any of its affiliates or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this site. The information from or through this site is provided "as is" and all warranties express or implied of any kind, regarding any matter pertaining to any service or channel, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement are disclaimed. nasscom and its affiliates and associates shall not be liable, at any time, for any failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information contained on the site. No representations, warranties or guarantees whatsoever are made as to the accuracy, adequacy, reliability, completeness, suitability or applicability of the information to a particular situation.
nasscom or its affiliates or associates or its employees do not provide any judgments or warranty in respect of the authenticity or correctness of the content of other services or sites to which links are provided. A link to another service or site is not an endorsement of any products or services on such site or the site.
The content provided is for information purposes alone and does not substitute for specific advice whether investment, legal, taxation or otherwise. nasscom disclaims all liability for damages caused by use of content on the site.
All responsibility and liability for any damages caused by downloading of any data is disclaimed.
nasscom reserves the right to modify, suspend / cancel, or discontinue any or all sections, or service at any time without notice.

For any grievances under the Information Technology Act 2000, please get in touch with Grievance Officer, Mr. Anirban Mandal at data-query@nasscom.in.

New

See all

No notification found.

Policy Update: Finance Ministry introduces digital KYC under PMLA

Komal Gupta

@Komal

August 21, 2019

Public Policy

4241

Context

The Ministry of Finance (Department of Revenue) has introduced digital KYC (know your customer) by amending the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, it said in a gazette notification dated 19 August 2019. “digital KYC means the capturing live photo of the client and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorised officer of the reporting entity,” the notification said.

The move comes as a major relief for the fintech industry as no cost effective, scalable and customer friendly alternative digital KYC method was available to them, until now. Post the Supreme Court judgment on Aadhaar in September 2018, leveraging Aadhaar eKYC was no longer an option.[1] In the absence of any alternate digital KYC, non-banking entities such as PPIs were forced to adopt the age-old, physical form of KYC. This process was expensive, time-consuming and operationally burdensome. The industry also resorted to the XML offline Aadhaar verification method as introduced by RBI for verification however as per the feedback received from industry, failure rate for such verification are as high as 57% making it an unviable method of digital KYC.

In June, NASSCOM had written to different government departments/ministries such as the Department of Revenue, UIDAI, NITI Aayog, Ministry of Electronics & Information Technology (MEITY) and the Reserve Bank of India (RBI) with regard to certain challenges that the PPI industry is facing, pertaining to KYC verification process. We had requested the regulators to expedite approval of video KYC as a method for doing digital KYC; so that customers who do not want to use Aadhaar for doing KYC have a digital alternative as well.

Steps involved in the Digital KYC Process

The reporting entities shall develop an application for digital KYC process which shall be made available at customer touch points for undertaking KYC of their customers and the KYC process shall be undertaken only through this authenticated application of the reporting entities.[2]
The access of the application shall be controlled by the reporting entities and it should be ensured that the same is not used by unauthorized persons. The Application shall be accessed only through login-id and password or Live OTP (one time password) or Time OTP controlled mechanism given by reporting entities to its authorized officials.
The client, for the purpose of KYC, shall visit the location of the authorized official of the reporting entity or vice-versa. The original Officially Valid Document (OVD) shall be in possession of the client.
The reporting entity must ensure that the live photograph of the client is taken by the authorized officer and the same photograph is embedded in the Customer Application Form (CAF). Further, the system Application of the Reporting Entity shall put a water-mark in readable form having CAF number, GPS coordinates, authorized official’s name, unique employee Code (assigned by reporting entities) and Date (DD:MM:YYYY) and time stamp (HH:MM:SS) on the captured live photograph of the client.
The application of the reporting entities shall have the feature that only live photograph of the client is captured and no printed or video-graphed photograph of the client is captured. The background behind the client while capturing live photograph should be of white colour and no other person shall come into the frame while capturing the live photograph of the client.
Similarly, the live photograph of the original officially valid document or proof of possession of Aadhaar where offline verification cannot be carried out (placed horizontally), shall be captured vertically from above and water-marking in readable form as mentioned above shall be done. No skew or tilt in the mobile device shall be there while capturing the live photograph of the original documents.
The live photograph of the client and his original documents shall be captured in proper light so that they are clearly readable and identifiable.
Thereafter, all the entries in the CAF shall be filled as per the documents and information furnished by the client. In those documents where Quick Response (QR) code is available, such details can be auto-populated by scanning the QR code instead of manual filing the details. For example, in case of physical Aadhaar/e-Aadhaar downloaded from UIDAI where QR code is available, the details like name, gender, date of birth and address can be auto-populated by scanning the QR available on Aadhaar/e-Aadhaar.
Once the above mentioned process is completed, a OTP message containing the text that ‘Please verify the details filled in form before sharing OTP’ shall be sent to client’s own mobile number. Upon successful validation of the OTP, it will be treated as client signature on CAF. However, if the client does not have his/her own mobile number, then mobile number of his/her family/relatives/known persons may be used for this purpose and be clearly mentioned in CAF. In any case, the mobile number of authorized officer registered with the reporting entity shall not be used for client signature. The Reporting Entity must check that the mobile number used in client signature shall not be the mobile number of the authorized officer.
The authorized officer shall provide a declaration about the capturing of the live photograph of client and the original document. For this purpose, the authorized official shall be verified with OTP which will be sent to his mobile number registered with the Reporting Entity. Upon successful OTP validation, it shall be treated as authorized officer’s signature on the declaration. The live photograph of the authorized official shall also be captured in this authorized officer’s declaration.
Subsequent to all these activities, the application shall give information about the completion of the process and submission of activation request to activation officer of the reporting entity, and generate the transaction-id/reference-id number of the process. The authorized officer shall intimate the details regarding transaction-id/reference-id number to client for future reference.
The authorized officer of the reporting entity shall check and verify that:

information available in the picture of document is matching with the information entered by authorized officer in CAF.
live photograph of the client matches with the photo available in the document.; and
all of the necessary details in CAF including mandatory field are filled properly.;

13. On successful verification, the CAF shall be digitally signed by authorized representative of the reporting entity who will take a print of CAF, get signatures/thumb-impression of customer at appropriate place, then scan and upload the same in system. Original hard copy may be returned to the customer.

We are still reviewing the notification and getting industry feedback on this. We will update the blog accordingly. In case you have any inputs or suggestions pertaining to this specific issue, write to us at komal@nasscom.in.

[1]Justice K. S. Puttaswamy (Retd.) and Another vs Union Of India And Others. See: https://www.supremecourtofindia.nic.in/supremecourt/2012/35071/35071_2012_Judgement_26-Sep-2018.pdf

[2] Under PMLA, reporting entity means a banking company, financial institution, intermediary or a person carrying on a designated business or profession.

NASSCOM Fintech Aadhaar video KYC KYC digital KYC PPIs finance ministry gazette notification offline KYC

Disclaimer

That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.

Download Attachment

Komal Gupta

Policy Analyst

Policy Professional| Former Tech and Business Journalist|

Call for Inputs: SEBI's consul...

Swapnil