KYC Amendments clarify on one customer one KYC, among others

– Aanchal Kaur Nagpal, Senior Manager & Harshita Malik, Executive | finserv@vinodkothari.com

The KYC Directions are one of the most operationally detailed and challenging guidelines issued by RBI and quite notably, a significant area where financial entities face RBI penalties and action. One of the major pain points for these institutions is repetitive KYC of customers which increases not only the costs associated with customer onboarding but also the timeline and complexity in such processes, leading to potential customer attrition. The amendments in the KYC Directions dated November 06, 2024 (‘Amendments’) provide clarity on the issue of repetitive KYC processes, alignment with the recent updates to the PMLA laws and other related changes.

This article covers the major changes brought by the said Amendments.

Applicability: Immediate

One customer one KYC

The KYC Directions require REs to allot a Unique customer identification code (‘UCIC’) to each customer that acts as a distinct identifier across all products and services offered by the RE, and it was specified that CDD procedures are applied at UCIC level. The Amendments now clarify that no fresh CDD will be required if an existing KYC compliant customer avails any other product or service from the same RE for the purpose of identification. Such clarification will help in efficient KYC processes, reduction in repetitive processes and documentation and thereby simplifying the customer onboarding processes.  However, it is advised that REs may take a declaration from the customer before extending any additional product/ service, confirming that there has been no change in the KYC information submitted by the customer.

Updation other than periodic updation

To ensure that information available with the RE and the associated risk categorisation is up-to-date, Para 38 requires periodic updation of the customer’s KYC information. The frequency of such periodic updation depends on the risk categorisation of the customer:

However, apart from such periodic updation, there may be instances of KYC updation at the instance of the RE where the customer provides any updated information. The Amendments clarify that the same process of periodic updation shall be applicable in case of any other KYC updation by the RE.

Alignment with PMLA amendment w.r.t. CKYCR

The  Prevention of Money-laundering (Maintenance of Records) Rules, 2005 (‘PMLR’) were amended on July 19, 2024 amending various provisions with respect to CKYCR:

Verification of Client Identity using CKYCR

Where the RE uses information downloaded from CKYCR as one of the modes of CDD, it may rely on such records and obtaining the same information/ documents from the customer again is not required unless:

• Client information has changed (existing requirement);
• Verification of current address (deleted by the Amendments);
• KYC records are incomplete or not as per applicable norms (added by the Amendment Rules);
• Document validity has lapsed (added by the Amendment Rules);
• Necessary for identity verification, enhanced due diligence, or risk profiling (existing requirement).

This means that REs cannot automatically rely on the KYC data downloaded from the CKYCR portal but they shall review and verify that the information is complete and meets the requirements under the KYC Directions before relying on the same.

Filing of updated KYC Information with CKYCR

Para 56 of RBI KYC Directions require REs to file KYC data of their customers on the CKYCR portal, within 10 days from the commencement of an account-based relationship with the customer. 

Previously, Rule 9(1D) of the PML Rules mandated that REs update additional details obtained from customers during the course of the loan on the CKYC as soon as possible. There was no corresponding provision under the RBI KYC Directions. It has been clarified that whenever the RE obtains additional or updated information from any customer, it shall file the updated information to the CKYCR within 7 days from the receipt of such information from the customer.

Updating KYC Records

The amendment to the PMLR required the CKYCR to notify all REs in case there is an updation in any KYC record and REs are required to update their records accordingly.

The said requirement was already specified under the CKYCR Operational Guidelines. As per step 3 of para II:

In case of changes or differences in the details of a client available in the KYC record, then the reporting entity can initiate a CKYC Update request in CKYCRR. To initiate an update request, the reporting entity will need to have the latest KYC record of the customer. When a record is updated, all the institutions linked^[1] to the KYC record in CKYCR will be notified through a system report of the update to the KYC record.

The Amendments now also pose such an obligation on REs under para 56(h) of the KYC Directions. Therefore, now, upon receiving such update from the CKYCR, the REs shall:

• Retrieve updated KYC records from the CKYCR portal; and
• Update their KYC records.

Note: The Amendments do not specify a timeline for such updation by the REs, however, the same should be done on a prompt basis. REs may consider fixing a regular periodicity for ensuring such updation across their loan portfolio, say monthly/ fortnightly basis. Such stipulation may be included in the KYC Policy of the RE.

^[1]  *Reporting entities who have either uploaded or downloaded a record in CKYCRR are considered to have an account-based relationship with the client and are therefore linked to the KYC.

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