KYC
Know Your Customer (KYC) is a mandatory regulatory process through which financial institutions verify the identity, address, and financial profile of their customers before onboarding them and throughout the relationship. In India, KYC norms are governed by the Prevention of Money Laundering Act (PMLA) and the RBI's Master Directions on KYC.
KYC originated as a global anti-money laundering standard following the Financial Action Task Force (FATF) guidelines and was incorporated into Indian banking regulation through the Prevention of Money Laundering Act, 2002 and subsequent RBI directives. At its core, KYC requires financial entities — banks, NBFCs, insurance companies, mutual funds, stockbrokers — to establish the identity of their customers using officially valid documents (OVDs) such as Aadhaar, PAN card, passport, voter ID, or driving licence before providing financial services.
KYC is categorised into three tiers based on the risk profile of the customer and the type of account. A simplified or minimum KYC allows limited services (small wallets, basic accounts) with reduced documentation requirements, enabling financial inclusion. A regular KYC requires full identity and address verification and is needed for standard banking services. A periodic KYC review requirement compels customers to revalidate their documents after specified intervals — usually 8–10 years for low-risk individuals, 2 years for high-risk customers.
The Central KYC Registry (CKYC), administered by CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest), was established to allow one-time KYC registration that can be utilised across multiple financial institutions. Once an investor submits KYC documents at any SEBI-registered intermediary, a 14-digit KYC Identification Number (KIN) is issued, which other institutions can accept without requiring the customer to resubmit the same documents. Video KYC (V-KYC), formalised by the RBI in 2020, further digitised the process, allowing banks to onboard customers remotely through live video verification.
For investors, KYC is the entry point to virtually all financial products — equity accounts, mutual funds, insurance policies, and now even digital lending apps. Non-compliance or failure to complete periodic KYC re-validation can result in account freezing or transaction restrictions. The FATCA (Foreign Account Tax Compliance Act) overlay adds an international dimension, requiring Indian financial institutions to self-certify whether their customers are US persons for reporting to the Internal Revenue Service.