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13 Steps Digital KYC Process Under India’s AML/CFT Regulatory Framework
13 Steps Digital KYC Process Under India’s AML/CFT Regulatory Framework
Entities regulated under India’s anti-money laundering/ countering the financing of terrorism (AML/CFT) rules and regulations are called ‘Reporting Entities’ under the Prevention of Money Laundering Act, 2002. Reporting entities include persons such as banking companies, financial institutions, intermediaries and Designated Non-Financial Businesses and Professions (DNFBPs). Such reporting entities need to verify their client’s identities through the Know Your Customer (KYC) process. The KYC process includes the collection and validation of customer identification documents.
The Reporting Entities can conduct the KYC process digitally. This infographic outlines the 13 steps involved in conducting the digital KYC process.
Digital KYC entails obtaining a live photo of the customer and valid identity proofs in situations where offline verification cannot be conducted, along with the latitude and longitude of the location where the digital KYC process was carried out by an authorised officer of the reporting entity. It can be conducted through the following steps:
Step 1: Development of Digital KYC Application
Reporting Entities need to create their own digital KYC application or platform to conduct the digital KYC process. Digital KYC can be conducted only through this application.
Step 2: Access Control and Authentication
The application for digital KYC should be accessible only to the authorised officers of the reporting entity through the use of login ID and password, Live OTP or Time OTP generated by the reporting entities themselves.
Step 3: Interaction with Customers for Document Verification
To complete the Digital KYC process, clients need to be called to the location of the authorised officer, or the authorised officer can visit the client’s location. The client must have their Officially Valid Documents (OVD) with them.
Step 4: Live Photograph Requirements
The reporting entity’s authorised officer must take a Live photograph of the client. This live photograph must be embedded in the Customer Application Form (CAF). The live photograph taken must have a watermark in a readable form containing the CAF number, GPS coordinates, authorised officer’s name, unique employee code assigned by the reporting entity, date (in DD:MM: YYYY format) and time stamp (in HH:MM: SS format).
Step 5: Background Specification
The KYC application of the reporting entity must have a feature where only the live photograph of the client is captured. It must not have a provision for uploading printed or video-graphed photographs. While taking the live photograph, the background behind the client must be white. The live photograph must be of the client alone, and no other person can come into the frame while the live photo is being taken.
Step 6: Document Photography and Watermarking
Live photograph must also be taken of the original OVD or proof of possession of Aadhaar when offline verification cannot be carried out. The document must be placed horizontally and captured vertically from above. There should be a watermark in readable form containing information as specified in Step 4. The authorised officer must ensure that there is no skew or tilt in the camera while taking the live photograph of the original documents.
Step 7: Lighting and Readability of Photographs
The authorised officer must ensure that the live photographs of the clients and OVD documents are taken in proper lighting so that they are identifiable and readable.
Step 8: Data Entry and QR Code
The next step is to fill out the CAF as per the documents and information given by the client. To make the process simpler, when documents given by the client have QR codes, they can be scanned to auto-populate or automatically fill in the details in the CAF instead of manually filing them.
Step 9: OTP Verification for Signature
After taking the live photos and filling out the CAF form, an OTP with a message saying, “Please verify the details in the form before sharing OTP,” should be sent to the client’s mobile number. This OTP acts as the client’s signature on the CAF and must be validated successfully. If the client does not have their own mobile number, they can use a family member’s, a relative, or a known person’s number, which should be mentioned in the CAF. The mobile number of the officer conducting the digital KYC process cannot be used for validation.
Step 10: Declaration of Authorised Officer
The authorised officer must provide a declaration about the capturing of the live photograph of the client and the OVD through an OTP sent to the authorised officer’s mobile number registered with the reporting entity. Successful OTP validation is treated as the authorised officer’s signature on the declaration. The declaration must also include a live photograph of the authorised official.
Step 11: Process Completion and generation of Transaction or Reference ID
After the above steps are completed successfully, the KYC application must give information about the completion of the process and submit the activation request to the activation officer appointed by the reporting entity. The KYC application must also generate a transaction ID or reference ID number for the process. The authorised officer must give this transaction ID or reference ID number to the client for future reference.
Step 12: Verification of Client Information
The authorised officer of the reporting entity must make a final check to verify that:
- The information written on the live photograph of the document matches the information mentioned by the authorised officer in the CAF.
- The live photograph of the client matches with the photo on the OVD.
- All required details in the CAF have been correctly filled.
Step 13: CAF Submission
After the verification process is done, the CAF is digitally signed by both the client and the authorised official. A signature or thumb impression of the client must also be taken on the hardcopy of the CAF, and the same must be uploaded to the application.
These steps conclude the digital KYC process. The digital KYC process ensures a secure, efficient, and accurate method for verifying customer identities. By adhering to these detailed steps, entities regulated under India’s AML/CFT laws can maintain high standards of compliance and security.
We are committed to assisting proper enforcement of AML and CFT regulations to regulated entities in India by designing a personalised AML framework – policies, internal controls, and procedures – and ensuring effective implementation of the same.
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