DRAFTKYC re-KYC e-KYC

30-May-2020Online

We start at 11 am sharp ☺

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What is KYC ?

• Generalized term used for the Account Opening Kit (AOK)by StockBrokers and Depository Participants

• Account Opening Kit contains• Individual KYC form (CERSAI format)

• Non-individual KYC form (SEBI format)

• Trading Account opening form (SEBI format)

• Demat Account opening form (Depository format)

• Documents for client FYI (SEBI + MII formats)

• Requirements of other authorities (e.g. FATCA/ CRS + PMLA, etc.)

• Intermediaries own forms (tariff sheet/ POA/ voluntary docs)2

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List of FYI documents (a recap)

• Rights and Obligations• Equity (SEBI) + Commodities (FMC/ SEBI) + Demat (SEBI) + SLB(Exchanges)+ Margin Trading (Exchanges)

• Terms and Conditions• Mutual Fund (Exchanges)

• Guidance notes/ Dos and don’ts• Equity (SEBI) + Commodity (SEBI/FMC)

• Investment Advisors (SEBI) ??

• Policy and procedure documents + tariff, etc. (intermediary)3

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The KYC part of the AOK

• Basically Proof of Address and Proof of Identity

• For individuals• SEBI circular ref. CIR/MIRSD/66/2016 dated 21-Jul-2016 requiresus to use CERSAI template for individuals + PAN

• Template revised from time to time by CERSAI

• New template issued recently, not yet implemented• FATCA/ CRS declaration is out?

• For non-individuals• SEBI circular ref. CIR/MIRSD/16/2011 dated 22-Aug-2011 asamended from time to time stands

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KYC refers to KYC, not AOK

• Common misuse of term

• Need to upload to central database

• Individuals• Into CKYC and KRA

• Non-individuals• Into KRA only

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When is KYC to be done

• At the time of onboarding

• Can depend on CKYC/ KRA data for KYC• Download the document ?

• In-person verification?

• So, onboarding is in two pieces• The KRA piece

• The rest of the form piece

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So when is re-KYC to be done

• Under PMLA• Periodic update of income and Networth

• Under Exchange requirements – inactive clients• If client has not traded for 12 months

• Undertake sufficient due diligence and obtain updatedinformation related to KYC

• Annual Reports under KRA• Every year for non-individuals

• Common business sense• Ownership may change, people die, we need to “know” 7

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Manner of KYC

• Physical form• Submitted by customers

• Effected by pandemic big time

• E-KYC with AADHAAR• Optional for client

• Online KYC• Everything online except AADHAR

• Hybrid

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Some terms . . 1

• PAN verification• Facility currently provided by two entities in India

• NEGIL and UTI

• OTP based E-sign• Process of signing a document digitally using Aadhar based OTP

• No demographic details (photo/ address) shared

• E.g. PDF document signing

• Only one entity provides this service as on date (NEGIL)• Others may start shortly

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Some terms . . 2

• Digital signature• Using USB token

• Accessing the demographics• Demographic details of the clients in the AADHAAR databased canbe accessed

• Done though KUA

• Biometric verification required

• Equivalent to in-person verification

• On the way . . . . .

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Some terms . .

• Offline verification through Aadhaar QR Code/ XML• Possible

• API services provided by KRAs• Interesting option to fetch data

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AADHAAR based E-KYC

• Was popular

• MIIs/ KRAs became KUAs• Brokers/ DPs became sub-AUAs

• Easy and convenient

• Then Supreme Court judgment• Privacy concerns

• AADHAAR (TDOFAOSBAS) ACT, 2016 was enacted

• Lack of clarity for E-KYC by Stockbrokers/ DPs• Stopped

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Developments

• Gazatte Notification dated 22-Apr-2020• Nine MIIs/ KRAs/ associates notified to become KUA

• For Aadhaar Authentication Service

• Regulatory approval• SEBI circular ref. SEBI/HO/MIRSD/DOP/CIR/P/2020/80

• Dated 12-May-2020

• Most have applied for KUA license with UIDAI• As soon as they get, sub-KUA onboarding will start

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The list of Nine

• Bombay Stock Exchange Limited

• National Securities Depository Limited

• Central Depository Services (India) Limited

• CDSL Ventures Limited

• NSDL Database Management Limited

• NSE Data and Analytics Limited

• CAMS Investor Services Private Limited

• Computer Age Management Services Private Limited14

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SEBI Clarifications

• SEBI circular• Ref. SEBI/HO/MIRSD/DOP/CIR/P/2020/73 dated 24-April-2020

• Clarification on Know Your Client (KYC) Process and Use ofTechnology for KYC

• Various clarifications provided

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Highlights - 1

• Express consent of the investor required• Before undertaking online KYC

• Consent to be taken online, no pre-tick☺

• Consent for what?• Consent to use Aadhar data

• What it is being used for and the process

• Declaration that you will not use for anything else

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Highlights - 2

• Digital locker• equivalent e-document

• Provided put in digi-locker by the issuing authorities under e-sign• Not uploaded by the user

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Highlights - 3

• eSign mechanism of Aadhaar shall be accepted in lieu ofwet signature on the documents provided by the investor• The cropped signature affixed on the online KYC form under eSignshall also be accepted as valid signature.

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Highlights - 4

• Mobile and email to be verified through One TimePassword (OTP) or other verifiable mechanism.• The mobile number/s of investor accepted as part of KYC shouldpreferably be the one seeded with Aadhaar

• Meet the requirements of the mobile number and email asdetailed under SEBI circular no. CIR/MIRSD/15/2011 dated August02, 2011 (self or family)• Limit of 5

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Highlights - 5

• If Aadhaar used• To be verified through UIDAIs authentication / verification mechanism

• If Aadhaar number submitted, to be redacted/ blacked out where theauthentication of Aadhaar number is not required

• Not to store/ save the Aadhaar number of investor in the system

• In case of e-KYC through Aadhaar Authentication service ofUIDAI or offline verification through Aadhaar QR Code/ XML• XML file/ Aadhaar Secure QR Code generation date is not older than 3days from the date of carrying out KYC.

• The usage of Aadhaar is optional and purely on a voluntary basisby the investor.

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Highlights - 6

• PAN to be verified• Online using the Income Tax Database

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Highlights - 7

• Bank account details are to be verified• by Penny Drop mechanism or any other mechanism using API ofthe Bank

• based on bank details in the copy of the cancelled chequeprovided by the investor, the money is deposited into the bankaccount of the investors to fetch the bank account details andname.

• The name and bank details as obtained shall be verified with theinformation provided by investor

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Highlights - 8

• Officially Valid Documents• Any OVD other than Aadhaar shall be submitted throughDigiocker OR

• Under eSign mechanism.

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Highlights - 9

• To complete the process• Take a printout of the completed KYC form and after affixing wetsignature, send the scanned copy / photograph under eSign OR

• Affix online the cropped signature on the filled KYC form andsubmit the same to the RI under eSign.

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Highlights - 10

• Where the investor has given address other than thedocument• Forward the KYC completion intimation letter through registeredpost/ speed post or courier, to the address of the investor incases.

• In such case of return of the intimation letter for wrong / incorrectaddress, addressee not available etc, no transactions shall beallowed in such account and intimation shall also sent to the StockExchange and Depository.

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Highlights - 11

• The original seen and verified requirement• As a clear photograph or scanned copy of the original OVD,through the eSign mechanism, or;

• As digitally signed document of the OVD, issued to the DigiLockerby the issuing authority.

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Highlights - 12

• For in person verification• IPV/ VIPV would not be required when the KYC of the investor iscompleted using the Aadhaar authentication / verification ofUIDAI

• IPV / VIPV shall not be required by the RI when the KYC form hasbeen submitted online, documents have been provided throughdigiocker or any other source which could be verified online.

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Highlights - 13

• The App shall• Facilitate taking photograph, scanning, acceptance of OVDthrough Digilocker, video capturing in live environment, usage ofthe App only by authorized person

• random action initiation

• time stamping, geo-location tagging

• seamless, real-time, secured, end-to-end encrypted audiovisualinteraction

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Highlights - 14

• Video in Person Verification (VIPV)• By authorised official, specifically trained for this purpose

• After obtaining informed consent

• The activity log to be stored for easy retrieval

• Include random question and response from the investorincluding displaying the OVD, KYC form and signature or could alsobe confirmed by an OTP

• photograph of the customer downloaded through the Aadhaarauthentication / verification process matches with the investor inthe VIPV.

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Takleef

• POA• E sign not possible

• Restriction of IT Act• 1 of 4 documents not allowed to be e-signed

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DRAFTQ&A – Please type

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