What is KYC?
KYC is a set of regulations that financial institutions and other businesses must follow to verify the identity of their customers. It’s about understanding who you’re doing business with and assessing any potential risks. KYC compliance helps to:
- Prevent money laundering: Criminals often try to disguise the source of their illegal funds. KYC makes it harder for them to use legitimate businesses for their activities.
- Combat terrorist financing: KYC helps to identify individuals or organizations that may be financing terrorism.
- Reduce fraud: By verifying customer identities, KYC makes it more difficult for fraudsters to steal money or commit other crimes.
What does KYC compliance involve?
There are three main components to KYC compliance:
- Customer Identification Program (CIP): This involves collecting basic information about your customers, such as their name, address, date of birth, and government-issued ID.
- Customer Due Diligence (CDD): This is a deeper dive into your customer’s risk profile. It may involve verifying the information you collected in the CIP stage, as well as assessing the source of their funds and the nature of their business activities.
- Enhanced Due Diligence (EDD): This is required for higher-risk customers, such as those in politically exposed positions (PEPs) or those involved in high-value transactions. EDD involves even stricter scrutiny of the customer’s identity and background.
Incomplete KYC: 1.3 Crore investor accounts on hold
Did you know that a whopping 1.3 crore investor accounts are currently ‘on hold’ due to incomplete KYC? According to KYC registration entities (KRAs), this staggering number is a result of individuals providing non-Aadhaar and non-officially valid documents during the initial KYC registration process. Effective from April 1, 2024, the Securities and Exchange Board of India (SEBI) has implemented new rules. Investors with an ‘on hold’ KYC status will not be able to carry out any transactions in mutual funds. This means no investing in new mutual funds or redeeming units from existing ones.
As per a Times of India report, the need for reclassifying KYCs under various categories emerged due to missing PAN and Aadhaar linkages in many investor profiles. Shockingly, several KYCs were done using documents like utility bills and bank account statements, which are no longer accepted by SEBI. Of nearly 11 crore investors, about 7.9 crore or 73% have valid KYC, a release from the KRAs said. KYCs of about 1.6 crore investors are under the registered category, who now have limited access to investing, while 12% of the total can’t operate their demat accounts and MF folios.
Therefore, it’s crucial for every mutual fund investor to check their KYC status before making any transactions.
How to check KYC status online?
Ensuring your Know Your Customer (KYC) status is up-to-date is crucial for seamless financial transactions. Fortunately, verifying your KYC status online is a straightforward process. An investor can follow these simple steps:
Step 1: Navigate to any authorized KYC Registration Agency (KRA) website. For instance, you can visit www.CVLKRA.com or www.CAMSKRA.com.
Step 2: Once on the website, locate and click on the “KYC Inquiry” option.
Step 3: You’ll be directed to a new page. Here, enter your Permanent Account Number (PAN), complete the captcha verification, and then hit “Submit.”
By following these steps, you can swiftly confirm your KYC status, ensuring compliance with regulatory requirements and facilitating hassle-free financial dealings.
Understanding KYC status
It’s crucial for investors to understand the meaning of different KYC statuses as it directly impacts their ability to make transactions smoothly. Here’s a breakdown of the common KYC statuses and what they signify:
Status validated:
This implies that the investor’s documents are verified directly from the source where they were issued. If the information remains unchanged, investors can seamlessly invest in various mutual fund schemes. Presently, only PAN and Aadhaar details can be authenticated from their issuing sources, as per CAMS FAQs. Therefore, individuals who have completed KYC using PAN and Aadhaar are likely to have their status verified, enabling them to invest across multiple mutual fund companies without the need for repeated KYC procedures.
Status registered/verified:
This indicates that the documents provided by the individual cannot be independently verified by the issuing authority. This applies specifically to individuals who have utilized other officially valid documents (OVD), aside from PAN or Aadhaar, such as passports, voter ID cards, etc., to fulfill the KYC process’s address and identity proof requirements. If their KYC status is listed as either ‘KYC registered’ or ‘KYC verified’, their existing investments remain unaffected. However, should they intend to invest in a new mutual fund scheme, they’ll need to resubmit the KYC-related documents.
For those seeking ‘KYC Validated’ status, they can initiate a re-KYC process by submitting their PAN and Aadhaar details. This will enable them to seamlessly invest in schemes across various mutual fund houses in the future, without the necessity of document submission again.
Status on hold:
If the documents provided during the initial KYC process are not officially valid documents like a voter ID card or passport, but rather bank statements, utility bills, etc., or if the investor’s mobile number and email ID are not validated, the KYC status will be displayed as ‘on hold’. Having an ‘on-hold’ KYC status means that all financial and certain non-financial transactions will be restricted until the required documents are submitted. This restriction will affect current SIP transactions, redemption transactions, etc.
In such a scenario, mutual fund investors must validate their email and mobile number to conduct transactions in their existing mutual fund schemes. Additionally, they should undergo the re-KYC process by submitting PAN/Aadhaar to avoid the need for submitting various documents again when making fresh investments.
In conclusion, ensuring KYC compliance is an essential prerequisite before embarking on your investment journey. By adhering to KYC regulations, investors unlock numerous advantages, including the convenience of digitally secure transactions.
Originally published at https://www.idcentral.io/blog on May 14, 2024.
