RBI Amends Master Directions on Bank KYC To Allow Video CIP, Simple Periodic Updation
The Reserve Bank of India (RBI) has amended its master directions on know-your-customer (KYC) norms to further leverage the video-based customer identification process (V-CIP), while simplifying the process of periodic updation for bank customers.
 
This follows from RBI's announcements last week when governor Shaktikanta Das directed banks not to impose any punitive restriction on customers for failure to update KYC till 31 December 2021 while also announcing a series of measures to enhance video KYC for customers. Video KYC, will now be considered on par with the face-to-face customer identification process.
 
The decision by RBI had addressed several issues raised by Moneylife Foundation in a memorandum submitted to the RBI governor on 12 April 2021 along with detailed cases studies. See the detailed memorandum here: 
 
The V-CIP can be used for new account openings as well as for periodic KYC updation of existing bank customers. It has also been extended to new proprietorship firms, authorised signatories, and beneficial owners of legal entity customers. The regulated entities have to comply with prescribed standards and procedures as set by the RBI.
 
In its master directions, the central bank has specified certain minimum standards which regulated entities will have to follow while opting to undertake V-CIP. As per the amended provisions, a regulated entity (RE) should have complied with the RBI guidelines on minimum baseline cyber security and resilience framework for banks. The RBI regulated entities REs include banks, NBFCs (non-banking finance companies) and payment system operators, among others.. 
 
"The technology infrastructure should be housed in its own premises of the RE and the V-CIP connection and interaction shall necessarily originate from its own secured network domain. Any technology related outsourcing for the process should be compliant with relevant RBI guidelines," RBI says.
 
Also, the RE should ensure end-to-end encryption of data between customer devices and the hosting point of the V-CIP application, as per appropriate encryption standards. 
 
It added that each RE should formulate a clear workflow and standard operating procedure for V-CIP and ensure adherence to it. The V-CIP process should be operated only by officials of the RE specially trained for this purpose.
 
The authorised official should record audio-video as well as capture photographs of the customer present for identification. The official can obtain the identification information using OTP based Aadhaar e-KYC authentication, offline verification of Aadhaar for identification, KYC records downloaded from Central KYC Registry (CKYCR) or equivalent e-document of officially valid documents (OVDs) including documents issued through DigiLocker. Further, the RE will have to ensure to redact or blackout the Aadhaar number, RBI says.
 
The regulated entities or REs may also undertake V-CIP for conversion of existing accounts opened in non-face to face mode using Aadhaar OTP based e-KYC authentication, and updation or periodic updation of KYC for eligible customers. 
 
In video KYC process, an authorised official of the RE completes customer identification by obtaining and verifying personal identification information through an audio-visual interaction as required for due diligence. The process should be undertaken live using a secured network.  
 
As per the master direction, video-KYC process has to be carried out only via the bank’s website or its mobile application and the customer cannot leave the bank’s website or the app until the video KYC process is completed.
 
The customer’s consent has to be recorded in an auditable and alteration-proof manner. The video recordings should contain the live GPS co-ordinates (geo-tagging) of the customer undertaking the video-KYC and should have a date-time stamp. If there is a disruption in the video-KYC recording, it should be aborted and a fresh session must be initiated. 
 
There is no requirement of any third-party video calling apps such as Zoom, WhatsApp and Skype, RBI clarified.
 
Never share personal details, PAN card and Aadhaar number if a link on SMS or email takes you outside the bank’s website to complete the video KYC as it could be fraudsters trying to gain access to your bank account.
 
As per RBI norms, banks should adopt a risk-based approach for periodic updation of KYC. For high-risk customers, banks can carry out updating of KYC at least once every two years. For medium risk customers, updating of KYC should be done once every eight years and for low-risk customers, updating of KYC needs to be done once every 10 years from the date of opening of the account or date of last KYC updation.
 
Given the current pandemic situation, RBI has allowed periodic updation of KYC through various modes of communication. This includes a self-declaration through a registered email ID, a postal letter, net banking or mobile banking. Hence, customers don’t need to visit the bank branch in person for KYC updation.
 
Earlier on 18 December 2020, RBI had amended the master directions on KYC norms and sought to mandate all legal entities whose accounts are opened prior to 1 April 2021, to upload their KYC data onto the CKYCR, pursuant to Rule 9 (1A) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PML Rules).This amendment helps in streamlining the KYC process ensuring that it remains time-efficient and promotes ease of use for the REs as well as their customers, through these additional provisions:
 
REs shall directly retrieve online KYC records from CKYCR using the KYC Identifier as submitted by the customer (along with an explicit consent for usage of such reports). Consequently, there would be no additional customer requirement for submission of KYC records, unless there is either a change in customer information; or the customer's address requires verification; or such additional KYC records are required by the RE in order to conduct either enhanced due diligence; or risk profiling for the customer (as required under the master directions).
 
REs shall communicate generation of the KYC Identifier by CKYCR, to the respective individual or legal entity.
 
Time Period for KYC Compliance with the CKYCR
 
As part of the customer due diligence, under the provisions of Rule 9 (1A) of the PML Rules, every RE is required to capture customer's KYC data and to file an electronic copy of the customer's KYC records with the central KYC records registry. Such filing must be made within 10 days from commencement of an account-based relationship with the customer.
 
With the objective of promoting ease of doing business, the government had formed CKYCR as a centralised KYC repository, to reduce the cost and burden of maintaining KYC documents by each financial institution or intermediary. This had in turn authorised Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), to perform the functions of and manage the CKYCR. Since the central registry is now fully operational for individual customers, as a logical corollary, RBI has extended the CKYCR compliance requirements to legal entities.
 

 

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    SEBI Proposes New Framework for Segregation, Monitoring of Collateral at Client Level
    Amidst instances of misuse of client collateral by trading members, market regulator Securities and Exchange Board of India (SEBI) has issued a new proposed framework for segregation and monitoring of collateral at client level. The proposal comes in the wake of the Karvy Stock Broking crisis where clients' shares had been pledged illegally as collateral against loan.
     
    The regulator has proposed to build a mechanism for reporting, dissemination and usage of information pertaining to collateral other than securities collateral received by way of pledge or re-pledge mechanism.
     
    While issuing the consultation paper, SEBI says the proposed framework is aimed at ensuring protection of client collateral. SEBI has sought public comments on the proposal by 24 June 2021.
     
    Segregation of client collateral refers to the procedures that enable identification and protection of client collateral from misuse by trading or clearing member and protection from default of such member or other clients. In the past, there have been instances of misuse of client collateral by trading member (TM) or clearing member (CM). This becomes even more accentuated at the time of default of a TM or CM. In such a scenario, not only confidence of investors in market integrity is shaken, but it also brings disrepute to the entire ecosystem of trading, SEBI noted in the discussion paper.
     
    "It is, therefore, desirable to put in place a framework that ensures identification of each client's collateral. This would help ensure utilisation of a client's collateral towards the margins of that client only," the market regulator says.
     
    This would help ensure utilisation of a client’s collateral towards the margins of that client only. SEBI also indicated that in case of possible default by a trading or clearing member such readily available collateral information will also help ensure expeditious return of collateral to each non-defaulting client after adjustment of any dues of the respective clients.
     
    Under the proposed process, clients would have to provide collateral to the trading or clearing member. In case of collateral provided to the trading member, it would have to retain some collateral with itself and pass on some collateral to the clearing member. Similarly, clearing members would have to retain some collateral with themselves and pass on some collateral to the clearing corporation (CC).
     
    “When collateral is provided onwards, it may be in the same form or in some other form (e.g. Clearing members may receive cash but create a fixed deposit from the cash and lien mark it to the clearing corporation),” SEBI says.
     
    In the depository system, there is no change in the form of collateral and details regarding quantity of securities provided at each stage, retained and passed on is available with the market infrastructure institutions (MIIs) for monitoring of pledge and re-pledge. 
     
    For such collateral pledged or re-pledged to the level of clearing corporation, SEBI says clearing corporation has visibility of the client to whom such securities belong to, and accordingly can assign the value of the securities collateral, based on applicable haircut, to that client's account.
     
    The proposed mechanism would capture the information pertaining to collateral provided by clients to TMs and subsequent onward submission of collateral and retention of collateral at every stage by the TM and CM.
     
    This would also make available the holistic information regarding the collateral at various levels to the clients. With a view to providing visibility of client-wise collateral (for each client) at all levels — TM, CM and CC — SEBI recommended that a reporting mechanism, covering both cash and non-cash collateral, should be specified by the clearing corporation.
     
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    SBI General Insurance's Penalty Reduced to Rs30 lakh by IRDAI
    Cutting down the penalty recommended by its Adjudicative Officer by Rs 70 lakh, Insurance Regulatory and Development Authority of India (IRDAI) has penalised SBI General Insurance Company Ltd Rs 30 lakh for repeatedly violating Insurance Act and the regulations.
     
    The charge against SBI General Insurance Company was that it had repeatedly failed to comply with Section 32D of the Insurance Act and the IRDAI (Obligation of Insurer in respect of Motor Third Party Insurance Business) Regulations, 2015 that mandates underwriting of minimum motor third party insurance business.
     
    The SBI General Insurance violated Section 32D during 2018-19, 2016-17 and 2017-18.
     
    According to IRDAI, the insurer should have underwritten motor third party insurance business of Rs 638.34 crore but did only Rs.316.36 crore resulting in a shortfall of Rs.321.98 crore.
     
    Similarly, during 2016-17 and 2017-18 the shortfall was Rs 146.11 crore and Rs 104.60 crore respectively.
     
    The Adjudicative Officer had recommended a penalty of Rs 1 crore.
     
    Deciding to cut down the penalty by Rs.70 lakh, the IRDAI Chairman Subhash C Khuntia in his order said taking into account the repetitive nature violation and the submissions of the insurer that they have fulfilled and marginally exceeded their obligations for financial years 2019-20 and 2020-21 a penalty of Rs 30 lakh is imposed on SBI General Insurance.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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