In a major development aimed at enhancing the integrity of the financial services sector, the central government is gearing up to implement risk-based, uniform Know Your Customer (KYC) norms by May or June this year, according to media sources.
RBI has earlier recommended adoption of risk-based, graded KYC norms
The decision came after a detailed discussion on the timeline for harmonised KYC during a recent Financial Stability and Development Council (FSDC) meeting. Sources revealed that a panel established by the Reserve Bank of India (RBI) had earlier recommended the adoption of risk-based, graded KYC norms by 2023.
The mooted KYC guidelines are expected to incorporate a layered system, varying from ‘Basic’ to ‘Very Strong’, thus permitting a more detailed risk evaluation of clients. However, actualizing these new guidelines may demand alterations to the ongoing Prevention of Money Laundering Act (PMLA) regulations to guarantee a smooth integration of this risk-focused, standardized KYC structure.
To ease this shift, inter-sect government teams and regulatory organizations actively cooperate to meet the RBI’s suggestions, guaranteeing a seamless and productive implementation of the new KYC guidelines throughout the financial industry.
Standardized KYC process to allow swapping across all platforms
The strategy of adopting standard KYC norms has its roots in the groundwork initiated with the 2015 Budget. This budget suggested a standardized method for KYC processes, allowing them to be swappable across the entire financial sphere. The 2024 Budget recently recommitted to this idea, emphasizing the adoption of a simplified ‘risk-based’ approach in place of the outdated ‘one size fits all’ model for the KYC process.
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With the introduction of this risk-based approach to KYC policies, it is predicted that the overall integrity of the financial system will significantly improve. This will happen through increased transparency, lighter compliance loads and reduced risks tied to money laundering and financial support to terrorism.
