UIIC AO 2016 – Essay – Indian Government should be more smart, not strict on KYC norms

KYC is a major
tool used to verify the identity of the clients of an organization, be it
banks  , corporate houses or insurance
companies. This is a process to ensure that the proposed customers, clients or
distributers are reliable and truthful.

‘Know Your
Customer’ is becoming very important globally to combat terror financing, money
laundering, financial fraud and identity theft. The objective of KYC procedure
is to detain banks and companies from involving in unlawful and illegal
activities intentionally or unintentionally.

In India, RBI
introduced the KYC guidelines for all banks in 2002. However, in 2004, RBI made
it mandatory for all banks to be fully equipped with KYC norms by Dec 31st
2005. Some key features of KYC guidelines is proper verification of the
identity provided by the  customer,
monitoring the customer transaction, ensuring that he is not involved in any
fraudulent activities.

However, in some
cases, despite using all these rules and regulations, some banks and companies
are being cheated. What lack are proper coordination among banks or companies,
using modern technologies to track customers, unavailability of quality and
acute information and easy acceptance of customers.

So, the process
needs to be relevant, effective and measurable. One effective way to strengthen
KYC and to make the process more transparent  is to follow digital route and implement
e-KYC. e-KYC means that KYC exercise is conducted entirely through internet
using an Aadhar interface provided by UIDAI and Pan card interface provided by
Income tax department. Banks and companies before accepting customers should
evolve a Customer Acceptance Policy i.e. application of Customer Due Diligence
(CDD). No account should be opened in anonymous names or when the identity of
the customer matches with the person involved in illegal activities, new
customers should be accepted only after CDD.

So, by adopting
all these features banks and insurance companies can have safe transactions and
can help them build good image in market. Moreover, with the help of the
improved KYC norms, we can  have a
society free of fraudulence.

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