CKYC of NBFCs in India

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CKYC of NBFCs in India
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NBFC Registration
Non-Banking Finance Company (NBFC) is a financial
institution offering a variety of banking and
non-banking services and majorly deals in loans
advances, stocks shares, hire purchase,
leasing, insurance, etc. In India, the NBFCs
registration is regulated by The Reserve Bank of
India (RBI) and follow the rules regulations
laid down by it. Chapter III B of the RBI Act,
1934, lays down the provisions related to
functions of NBFCs and hence, are supervised
regulated based on them. In addition, it is
mandatory for the NBFCs to be duly registered as
required under the Companies Act, 2013
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Time and again, RBI being the regulatory
authority, comes out with amendments, updates
additions related to certain provisions. The need
for such amendments, etc. arises from time to
time, as to keep up with new changes and demands
which are essential for the health of the
institutions. In one such move, the RBI has
published on February 25, 2016, Master Direction
Know Your Customer (KYC) Direction, 2016, which
should be followed by all Regulated Entities
(REs). Regulated Entities covers all Scheduled
Commercial Banks, Financial Institutions,
Non-Banking Finance Companies, all Payment System
Providers, agents of Money Transfer Service
Scheme, Domestic and cross-border wire transfer
Banks, etc.
Master Direction (KYC) Direction, 2016
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Salient Features of KYC Direction 2016
In terms of the provisions of Prevention of
Money-Laundering (PML) Act, 2002 and the
Prevention of Money-Laundering (Maintenance of
Records) Rules, 2005, Regulated Entities (REs)
are required to follow certain customer
identification procedures while undertaking a
transaction either by establishing an
account-based relationship or otherwise, and
monitor their transactions. The revised Master
Direction is in accordance with the changes
carried out in the PML Rules vide Gazette
Notification GSR 538 (E) dated June 1, 2017, and
thereafter and is subject to the final judgment
of the Honble Supreme Court in the case of
Justice K.S. Puttaswamy (Retd.) Anr. V. Union
of India, W.P. (Civil) 494/2012, etc. (Aadhar
Cases)
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Salient Features of KYC Direction 2016
These Directions are called the Reserve Bank of
India (Know Your Customer (KYC)) Directions, 2016
and came into effect from the day it was
published. Chapter-I of the document covers
basic information on applicability and definition
of different terms which are later used in
reference. Chapter-II gives general guidelines
to the REs about framing the Know Your Customer
(KYC) Policy. It mandates the inclusion of four
key elements (a) Customer Acceptance
Policy (b) Risk Management (c) Customer
Identification Procedures (CIP)
and (d) Monitoring of Transactions There should
be a Designated Director and a Principal Officer
to ensure compliance as required by law.
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Salient Features of KYC Direction 2016
Chapter-III deals with the guidelines to frame
the Customer Acceptance Policy, with a special
note that the financially or socially
disadvantaged people should not be denied banking
or financial facilities. Chapter-IV enumerates
the factors to be adopted by the REs for risk
management. Chapter-V gives instructions to REs
on how to undertake the Customer Identification
Process in varied cases. Chapter-VI covers the
Customer Due Diligence (CDD) Procedure at great
length and additionally discusses the procedure
for obtaining Identification Information. The
first part establishes the CDD Procedure in case
of Individuals along with describing the
simplified procedure for opening accounts by
Non-Banking Finance Companies (NBFCs)
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Salient Features of KYC Direction 2016
Chapter-VIII covers Reporting Requirements to
Financial Intelligence Unit of India, guiding the
REs towards it. Chapter-IX describes
requirements/obligations under International
Agreements and Communications from International
Agencies. REs have to ensure that they do not
have an account in the name of individuals/entitie
s, who are suspected of having terrorist links,
appearing in the lists circulated by the United
Nations Security Council (UNSC)- ISIL (Daesh)
Al-Qaida Sanctions List, 1988 Sanctions
List. Chapter-X covers guidelines on varied
topics and is aptly titled as Other
Instructions. The first subsection gives away
instructions about Secrecy Obligations and
Sharing of Information by REs. NBFCs are required
to maintain the confidentiality of information as
provided in Section 45NB of RBI Act 1934.
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CKYC 2016

• Central KYC Registry is a centralized repository
  of KYC records of customers in the financial
  sector with uniform KYC norms.
• This has been created with the aim of-
• Inter-usability of the KYC records across the
  sector,
• reducing the burden of producing KYC documents
  and getting it verified every time when the
  customer creates a new relationship with a
  financial entity,
• substantial cost reduction by avoiding
  multiplicity of registration and data upkeep.
• Central KYC Registry is a user-friendly web
  portal that has unique KYC identifier linked with
  independent ID proofs. On this portal, KYC data
  documents are stored in a digitally secure
  electronic format that provides advanced user
  authentication mechanisms for system access.

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NBFCs are slowly taking charge of the financial
needs of Indias unorganized sector!-Shweta
Gupta, Founder, and CEO, MUDS
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Thank You!