Regulations have made the term “Know Your Customer” (KYC) a commonplace. All institutions in the BFSI industry are required to adhere to KYC regulations. Hence, KYC must be done whenever a consumer requests financial services. This still applies even if the customer has completed their Know Your Customer (KYC) with another company already.
This customary KYC compliance is a hardship on both customers and businesses. CKYC act was issued to minimize the burden of several KYC transactions while reducing financial crime.
What is Central KYC?
One KYC for individuals
Central Know Your Customer, also known as CKYC, is an initiative by the Indian government. Its main objective is to standardize the Know Your Customer (KYC) process across all financial institutions. CERSAI (Central Registry of Securitisation and Asset Reconstruction) oversees the CKYC Registry.
CKYCR attempts to reduce the burden of KYC document production and eliminate redundancy in KYC compliance. It serves as a central repository for all the personal information of any customer.
The Indian Finance Ministry issued the CKYC directive in the 2012-13 Union Budget. Thereafter, it became functional in July 2016.
Features of CKYC
Availing any financial service was a hassle before CKYC came around. The banking institution’s requirements necessitated a flurry of paperwork. Time and effort were required to do this. To put it another way: to open an account in a new financial institution, one must go through the same procedure of documentation again.
Thanks to CKYC, it has eliminated paperwork for customers. The data is stored in a central location. Further, this data is accessible to authorized financial institutions. Customers and banking institutions alike benefit from this convenience.
CKYC has multiple features that make it a valuable tool for ensuring compliance:
- Each customer’s KYC data is associated with a unique identifier – the KYC Identification Number (KIN).
- The data is carefully saved in digital form in a centralized repository.
- FIs can obtain KYC records in bulk by simply entering the CKYC identifier and then authenticating to gain access to the documents.
- When a customer’s KYC records are updated, the relevant organizations are alerted.
- Customers have the option of linking their KYC to multiple correspondence addresses.
How does CKYC work?
Prior to availing a financial service in India, the government has made it mandatory to complete KYC. Financial services can be obtained by completing the CKYC only once.
The process of CKYC works along the following lines :
- A customer must complete a Know Your Customer (KYC) form before making an investment with a fund company. It is then sent to CERSAI for verification.
- CERSAI checks if all the CKYC guidelines are adhered to and then saves KYC documents securely in one server.
- Customers who have successfully completed CKYC are sent a 14-digit KYC Identification Number (KIN) via SMS and email. Customer’s ID proof is linked to KIN.
- Afterwards, the user can utilize KIN to complete KYC with any other financial institution without having to resubmit KYC paperwork.
- Through the CKYC number, businesses can extract customer’s documents through CERSAI to complete their KYC verification.
This simplifies the KYC verification procedure for all parties involved.
Here’s a comparison of KYC verification before and after the implementation of CKYC.
CKYC eliminates the need for repeated KYC transactions by allowing FIs to validate a customer’s KYC based solely on their KIN, as demonstrated above.
How is it different from KYC and eKYC?
Three concepts that appear to be identical are actually distinct: CKYC, KYC, and eKYC.
As a matter of policy, all financial institutions are required to conduct a Know Your Customer (KYC) process. It is used to identify, investigate, and monitor potential cases of financial fraud. Several paper-based, digital, and video-based KYC methods are available under KYC.
Customers’ identities are verified digitally through the use of a process known as ‘Electronic KYC’ or eKYC. The UIDAI database aids in eKYC identification verification. This is possible after the customer confirms the eKYC request which they receive via OTP, offline via XML files, or through the QR code on their Aadhaar card.
As stated previously, CKYC is done to assist investors conduct their KYC only once. Any RBI, IRDA, SEBI, or PFRDA registered company does not require the investor to complete repetitive KYC procedures. It facilitates investment participation and easy client onboarding.
Benefits of CKYC
CKYC, a one-time process has multiple benefits. It’s got it all: time savings, ease of use, and universal accessibility.
- Easy process: Anyone can sign up for an account by following a few easy steps. The investing authorities have a simpler time fetching their customers’ investment data.
- Benefits the Financial Institutions: All FIs bear the cost of conducting KYC. With a centralized database of verified KYC in place, only one FI will be required to perform KYC on a customer. The rest will have access to that information if needed. In the BFSI industry, this lowers the overall KYC fees. FIs can also focus their limited resources on other aspects of their business rather than KYC verification.
- Makes KYC easier: By eliminating the requirement for clients to bring their KYC documents with them whenever they need to avail any financial service, CKYC makes KYC more user-friendly.
- Less time and energy investment for KYC verification: After a person registers with CKYC, they don’t have to go through all of the paperwork again. Similarly, FIs don’t need to spend hours on separate KYC checks. As a result, CKYC reduces the turnaround time.
- Helps detect fraud and money laundering cases: By standardizing the identification process, CKYC secures the banks against money laundering and other criminal activities.