Those pesky KYC updates may soon be a thing of the past

The government is preparing to amend the Prevention of Money Laundering Act (PMLA) to bring about such a risk-based KYC framework, two people aware of the development said. Currently, financial institutions mandate a uniform KYC process for their customers regardless of risk.

“The changes would align both Reserve Bank of India regulations and broader PMLA compliance norms, streamlining the KYC onboarding process and improving overall customer experience,” one of the two people cited above said on the condition of anonymity.

India’s complex web of KYC regulations often leads to significant headaches for both financial institutions and individuals due to the need for repeated documentation and varying requirements across different entities. The current system can be cumbersome and time-consuming, requiring multiple submissions of similar information to different agencies. The amendment to PMLA seeks to fix this.

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“There is a plethora of agencies repeatedly collecting and verifying data to keep KYC records updated,” the second person added. “However, if a financial institution has assessed the customer risk profile and the account is active, such frequent validation is unnecessary; the proposed changes to PMLA rules aim to streamline this process,” the person added.

A key pillar of the KYC reform is the rollout of a revamped Central KYC Records Registry (CKYCRR) this year, aimed at accelerating digitization, improving record-sharing across financial institutions, and simplifying KYC updates. CKYCR aims to eliminate multiple KYC verifications by creating a central repository where customers submit their details once.

A finance ministry spokesperson did not respond to emailed queries.

The CKYCR revamp plan includes verifying data and documents with issuing authorities, making the registry a reliable source of KYC records. AI and facial recognition technology will be used for deduplication, ensuring only a golden record –  a single and definitive record without duplicates – remains.

Customers will have view-only access to their KYC details and can request corrections, facilitating up-to-date records in the registry.

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Economists said KYC reforms are needed, particularly by extending update intervals and adopting a risk-based approach to customer profiling, which would improve convenience and reduce compliance costs.

“Reforms in KYC are needed, and changing the requirement to updating to longer period is also needed,” said Madan Sabnavis, chief economist, Bank of Baroda.

He added that a risk-based approach had been used to differentiate individuals for this purpose, which helped reduce compliance costs while also improving convenience.

The government also plans to integrate KYC with DigiLocker for digital onboarding, improving customer convenience and access to financial services. OTP/face authentication will ensure customer consent for using personal data, boosting confidence in data privacy.

The reforms will provide financial institutions with metadata to enhance trust in the CKYCR registry, and a no-fee model will encourage further digitisation.

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Streamlined KYC updates will also significantly reduce turnaround times for record updates across financial institutions.

To be sure, the turnaround time for updating KYC records across financial institutions has already been significantly reduced with the implementation of CKYCR, and this will improve further with the rollout of the revamped system.

This centralized system enables FIs to access and verify KYC information electronically, minimizing the need for repeated data collection.

To date, CKYCR has digitized approximately 990 million records and enhanced record interoperability among FIs, with a total of about 1,360 million records now accessible.

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