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31 August 2021

Importance of KYC Process in the Financial Institution


The Prevention of Money Laundering Act 2002 drove SEBI (Security and Exchange Board of India) to

concoct a system for financial institutes to know their clients in the form of KYC procedures. eKYC

process is a convenient government approach to examine the financial contributor's identity and the

investment's source. However, offline KYC service is also available. This article shares the details about

the ekyc and how the KYC process is important for financial institutions.

What is KYC? 

KYC stands for "Know Your Client" or "Know Your Customer." KYC verification is a common practice in the investment business that guarantees investment advisors have point-by-point data about their clients' financial credibility, status, and investment knowledge.

KYC secures both the lender/investment counselor and customers. In the case of customers, they are secured by having their investment counselor comprehend what investments would be best for their circumstances. 

On the other hand, Investment counselors are secured by knowing what they can include and exclude from their customer's portfolios. KYC agreement typically includes provisions and policies, such as client acknowledgment policies, risk management, and transaction checking.

How does KYC work?

The KYC verification process can be performed without the hassle of physically visiting a kiosk via an e KYC verification online facility. Following are the steps for the ekyc process:

1. Form Filling

Clients are needed to round out an online KYC registration form using whichever outlets they want to do monetary transactions through. With this procedure client's personal data is collected. Regardless of whether this data is true, form update will rely upon the due perseverance of the candidate.

2. Providing evidence

After the form collection, the candidate will be needed to upload scanned copies of the original documents showing similar data as filled in the form onto the site.

3. Information Verification 

The recorded documents go through an analysis process against different checks. This methodology is completed to make sure that the given information has not been messed with in any way. When the document is approved, information is then taken out from the documents through the OCR or without the OCR.

Subsequently, the three procedures mentioned above are basically how the online KYC registration functions. However, you can also complete your KYC via an offline process.

What is the importance of the KYC process in a financial institution?

The eKYC process is generally utilized when bank clients proceed to open accounts. Additionally, Banks need to refresh their clients' KYC details occasionally. 

The KYC is significant in banks and other funding institutions in order to guarantee that their customers are not associated with money laundering or financing-related criminal associations, this diminishes the occurrence of identity theft, financial extortion, and so on. KYC oversees such risks and assists with understanding client finance practices.

The KYC procedure keeps away from any chance of extreme reputational and financial penalties forced by controllers. Banking is a space with the innate danger of financial fakes and money laundering, so it is compulsory to perform background screening techniques on clients to avoid deceitful exercises.

A client requiring financial service will be needed to present their KYC documentation before they start investing in an assortment of finance mechanisms like mutual funds, fixed deposits, and bank accounts by means of financial institutions outlets.

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