Open a Demat Account for a unified KYC program

For example, consider a situation where a customer wants to invest a part of his savings in mutual fund schemes and the rest on a term insurance plan and fixed deposits. In this case, customer will be asked to submit the same set of documents (namely, self-attested copies of PAN card and address proof) for investing in mutual funds, fixed deposits as well as for buying term insurance plan. Instead if the customer opensa demat account, he won’t have to submit documents again. The reason being that SEBI follows the unified KYC regime for investments—once a person is KYC verified, he or she doesn't have to fill up multiple forms or submit documents all over again for making additional or fresh investments in mutual funds or stock market.

So, can this unified KYC regime of SEBI be replicated across financial sectors? Indeed, there is a workable solution—maintaining a central repository of all KYC documents that can be accessed by all financial institutions whenever required.

Before I go on about explaining how the Central KYC Registry (CKYCR) can ease our financial life, let's first understand why KYC is important. The main objective behind introducing KYC norms was to prevent identity theft, financial fraud, money laundering and terrorist financing. Unfortunately, the current process for KYC becomes a big bottleneck for simple financial products for normal consumers like you and me.

Currently, each sectoral regulator—Reserve Bank of India (RBI) for banks and NBFCs, Securities and Exchange Board of India (SEBI) for AMCs, Insurance Regulatory and Development Authority (IRDAI) for insurance companies, Forward Markets Commission (FMC), and Pension Funds Regulatory and Development Authority (PFRDA)—have their own KYC policies. As each regulator collects and stores data separately, maintaining a complete picture of a client's financial history becomes difficult.

Having realised the futility of having multiple KYCs, the Union Finance Minister announced the formation of a Central Know Your Customer (KYC) repository in the Union Budget 2012-13 for receiving, storing and retrieving KYC records in the digital form. It further issued a notification in December 2015 authorising the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) as the CKYCR for the entire financial sector. The objective was simple—maintain all consumer-centric information under one platform so that it can be conveniently accessed by all financial institutions or intermediaries on a need basis.

Accordingly, the three major market regulators—RBI, SEBI and IRDAI—asked all financial institutions and intermediaries under their control to upload KYC documents of new accounts to CERSAI. This will save the financial institutions from repeating the KYC documentation for the same clients and thus reduce the cost and turnaround time of opening accounts. At a later stage, even the older KYC records will be moved to CERSAI.

How does it help consumers?

Once the concept of CYKCR comes into full-scale operation, a single KYC will be sufficient to avail the entire spectrum of financial services. Customers will be provided a unique identifier, which can be quoted every time they wish to buy any financial product.

An easier KYC documentation process will speed up the process of financial inclusion and spread investment culture among the masses.

Let me explain this to you with an example. Let's assume that you open savings account with a bank. As soon as you apply for this, your KYC data will be sent by that bank to CERSAI and an identifier will be provided to you. Now, if you plan to open an alternative account with another bank, your second bank can directly fetch your KYC data from CERSAI by quoting your unique identifier. The same process can be followed while opening a demat account or for buying insurance policies and mutual funds, irrespective of the fact that these products come under the ambit of different financial regulators. Demat account also provides benefits in safety, reduced paperwork etc., So, all you need to do is submit your documents once and they will be synced with all your investments without any hassle. 

However, you may have to update your records in case of any changes in protocol (e.g. change of residence or contact details etc). You just have to update your document with one financial service provider and it will be automatically synced with the rest. This automatic sync is powered by demat account.