Extra lately, as private and non-private banks accelerated their progress trajectory, this technique of social repute certification was not possible.
Moreover, with the advances in digital public infrastructure (cell web, Aadhaar, UPI, and so on) and applications resembling Jan Dhan Yojana, India undertook the large train of getting a checking account for all eligible Indians.
Digitization was a boon to Indian residents. Accessibility to banks grew to become the norm as an alternative of the exception. Nonetheless, as they are saying, whenever you invent the ship, you additionally invent the shipwreck.
With monetary progress got here monetary crime. New types of fraud emerged. Cases of social engineering, phone-jacking, OTP-stealing, faux buyer assist and so on grew to become on a regular basis tales.
Additionally learn: KYC Maze: Traders, distributors face updating hurdles with NDML & DotEx KRAs
Within the Reserve Financial institution of India’s (RBI) KYC norms by the Grasp Directive in 2016 and subsequent updates, banks have been mandated to make sure: that any new checking account applicant is who they are saying they’re (proof of identification); they dwell the place they are saying they dwell (proof of handle); banks needed to additionally conduct a bodily verification for the paperwork (OSV, or Authentic Seen and Verified and CPV, or Contact Level Verification)
The explanation for this kind of verification is to make sure that no fraudster enters the system, particularly, the federal government was anxious about terrorism and cash laundering. Alongside the way in which, RBI launched anti-money laundering checks to reinforce safety.
The brand new fraudsters discovered that they may use minimal KYC compliance norms utilizing stolen IDs to open ‘burner’ accounts or mule accounts. These mule accounts have been used to launder the proceeds of crime to a number of totally different accounts earlier than withdrawing the money from ATMs.
Whereas KYC norms have been round for a very long time and have protected the residents of our nation from fraud for a few years, they aren’t with out loopholes.
For instance, a KYC initiated by CKYC or central KYC (recall the Amitabh Bachchan advert that mentioned let’s make certain your KYC is straightforward and also you don’t have to gather your paperwork) has vital limitations.
The financial institution that submits the info takes no legal responsibility for the accuracy of the info and the financial institution that pulls the info may not conduct their very own diligence. It typically finally ends up being a rubbish in/rubbish out drawback.
Maybe individuals neglect the rationale why KYC exists. Let’s be categorical about it, KYC exists to get rid of fraud. It exists in order that each fiduciaries in addition to the residents are protected.
A flawed KYC might imply that somebody’s identification is stolen and these accounts are used for malicious functions. On this context, the regulator’s main accountability is to not make KYC simple however to make sure that it’s completed accurately.
Having labored within the fraud detection area, I get anxious when enterprise and trade leaders make calls for to scale back KYC norms with out serious about the repercussions.
Just lately, a gaggle of fintechs had submitted a illustration asking for a risk-based method for KYC/KYB. The thought is that if the chance of the person/entity to the fiduciary is low, then the KYC for this entity ought to be much less onerous. As now we have seen, such steps result in a proliferation of mule accounts utilizing stolen IDs.
Simply to offer a flavour of this challenge, I like to recommend that you simply have a look at what number of telephone numbers are in your identify, or try your Cibil document to see what number of enquiries or loans have been issued in your identify with out your permission.
The issue additional will get aggravated as a result of the KYC norms for the assorted regulators are usually not aligned. Within the telecom world, pay as you go accounts don’t have a bodily KYC (the sim vendor himself authenticates the paperwork) and SIM card distributors themselves endure vendor/distributor due diligence (KYB, or Know Your Enterprise). The federal government is now taking a look at a unified KYC norm throughout all of the regulated entities.
Primarily, it ought to be sure that KYC shouldn’t be assumed due to the supply of the paperwork. There are 4 questions that should be answered to make sure that fraudsters don’t enter the system:
Does the entity (particular person or enterprise exist)—Have they got a POI and is it real (we should be sure that this doc shouldn’t be tampered with).
Are they those doing the transaction—Selfie versus POI match together with liveness detection, which ensures that the particular person shouldn’t be pretending to be another person.
Have they dedicated fraud previously—We should be sure that fraudsters who’ve dedicated fraud previously are usually not allowed within the system. You are able to do an FIR/courtroom examine and likewise the regulators ought to begin constructing a fraudster database that may be checked on the level of onboarding.
POA and CPV examine—We now have to make sure that the particular person resides the place they are saying they dwell and that it matches the proof of handle.
This may solely be completed by know-how and the present Video KYC norms cowl a lot of the base. Moreover, be sure that we don’t make the error of believing that KYC is there to make individuals’s lives depressing. It’s there to guard your identification from getting stolen and also you or your family members from getting scammed.
