KYC: Beyond Regulatory Compliance

Posted On Sunday, Jan 01, 1950


Some were upset...
Some were excited...
Some were even inspired...
But everything surrounding the Know Your Customer (KYC) norms was ultimately about one thing...

It's about how the investors' identity could be verified and ascertained.

But confusion still prevails!

Unfortunately, ‘Know Your Customer' initiatives and regulations have not been viewed in a positive light by the investing population at large. These regulations, along with many others, are viewed simply as an unnecessary paperwork. KYC is not just a regulatory requirement; it is a necessary tool to help safeguard your identity.

The Changing Scenario

The mutual fund landscape in India is changing. The fundamental role of an >asset management company is to manage the savings of its investors in the best possible manner, and provide them with exemplary service. The better the management and service, the happier the investor. This having been stated, what could be better than getting to know more about your investors? Knowing your customer should not be seen as a function in accordance with the set guidelines, but rather must be viewed as a fundamental building block for an investor friendly organization.

Complying with regulatory requirements should be a by-product of knowing your client with successful customer relationships being the ultimate goal.

The changes in KYC regulations over the past few months have been a delicate game of chase between the regulator and the mutual fund industry. Prior to 1st Jan 2011, KYC compliance was only required in cases of mutual fund investments of Rs 50,000 and above. However, with effect from 1st Jan 2011, all investors irrespective of the size of their investment had to be KYC compliant. Just as investors were beginning to warm up to this idea, in a recent circular, SEBI yet again revised KYC norms. With effect from January 1, 2012 there would be a Uniform KYC that would be used by all SEBI registered intermediaries (including Mutual Funds).

Earlier, an investor had to go through different KYC processes for each SEBI regulated intermediary viz. Broker, Depository Participant (DP), Mutual Fund, Portfolio Manager etc. This resulted in duplication of work, record-keeping space and was a burden on the intermediaries and even more to the investor. Over time variations emerged in the prescribed procedures for undertaking KYC by different classes of intermediaries within the securities market. This restricted the ease of entry of potential clients in the securities market. Thus, there came about the need to have a Uniform KYC!

Uniform KYC Compliance

For investors who were already KYC compliant, there was nothing to worry about, and they can continue investing. However, investors who had not completed the KYC norms with the CVL are required to follow the uniform KYC process at the time of making investment in Mutual Funds, both fresh purchases as well as additional purchases.

Investors who want to invest and are not currently KYC compliant have to apply for the Uniform KYC at the time of investment. They would also have to fulfill a new requirement called (In-person verification) IPV which would record details like name of the person doing IPV, designation, organization name, and signatures. IPV can be done by the AMC, or a NISM/AMFI certified and KYD-compliant distributor. This KYC application along with the completed IPV can be submitted at any SEBI registered intermediary including Mutual Fund AMCs and RTAs (Point-of-service/POS). A uniform KYC is a beginning made towards regulators collaborating. For instance, IRDA is doing common KYC across insurance companies, while the ministry of finance is talking to all financial regulators for common KYC as was published in the News Papers.

Not only about Financial Privacy

The sanctity of the individual's right to financial privacy must definitely be upheld. However, given the times that prevail and the constant strife against drug trafficking, money laundering, corruption, tax evasion, and, (as no one will need reminding), terrorism, anonymity, whether individual or corporate, is no longer a tolerable excuse and sources of funds must now be known.

Investors must have a more welcoming approach to 'Know Your Customer' (KYC) standards, while the mutual fund industry needs to look at it from a perspective wider than money laundering alone. The need for regulations like KYC originate from concerns for market integrity and the direct and indirect losses that may be incurred by investors on behalf of institutions who do not have or have not properly implemented appropriate due diligence procedures. However, there always is the challenge of verifying information on an individual from areas where there are no reliable databases.

To look at the new KYC regulations as simply a regulatory requirement would be the wrong approach. While the KYC process allows you to manage your risk, if properly implemented it should also provide the data to help enhance customer service. Both, AMCs and investors must shake off the 'regulatory burden' mindset and instead seek to acknowledge and capitalize on this initiative. Performing effective due diligence is not simply a compliance issue, but an opportunity to better understand your customers and their needs.

Written by Meera Shetty, Head Investor Relations, Quantum Asset Management Company Private Limited

Statutory Details, Disclaimers and Risk Factors:
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit - to read Scheme Specific Risk Factors.

Above article is authored by Quantum.

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