If you have tried setting up an account with online trading applications like Groww, Upstox, and Zerodha, or if you have undergone a KYC process for a mutual fund company, you’ve already come across SEBI KYC.
But, what is SEBI? The Securities and Exchange Board of India is the body that regulates the capital market in India. Yes, platforms where you can invest capital for a profitable return make up the capital market.
Role of SEBI in Capital Market
SEBI or The Securities and Exchange Board of India is a statutory body that regulates the capital market. The government established SEBI in 1992 for protecting the interests of investors investing in securities along with regulating the securities market.
Here’s what ‘investors’ and ‘securities’ refer to:
Let’s consider you bought a company’s stock. That way, you are the investor and the stock you bought is the security.
In technical terms:
An ‘investor’ is an individual or entity (such as a firm or mutual fund) who commits capital to a security with the expectation of receiving financial returns. On the other hand, ‘security’ is a fungible and tradable financial instrument that is used to raise capital in public and private markets.
What is SEBI KYC?
SEBI KYC (Know Your Customer) is the process of verifying the identity of investors. Its purpose is to prevent the misuse of financial services for fraudulent activities like money laundering, corruption, and terrorist financing.
Investors can complete SEBI KYC using proof of identity and address, and verification of one’s face. Further, since 2020, SEBI KYC has become an online process. It can be completed using a fully digital journey, without having to step out of one’s house.
SEBI circular for KYC Registration Agency (KRA), April 2022
In a recent SEBI circular on KYC Registration Agency (KRA), SEBI introduced some changes. These changes intended to make the KYC process investor friendly and maintain its uniformity across all SEBI-regulated intermediaries viz. Mutual Funds, Portfolio Managers, Depository Participants, Stock Brokers, Venture Capital Funds, Collective Investment Schemes, etc.
The circular, dated April 6, 2022, requires the KRAs (SEBI KYC Registration Agencies) to verify the KYC records of clients within two days of the document being received.
During the process of validation, KRAs will validate details of Aadhaar through Unique Identification Authority of India (UIDAI) authentication, PAN using the Income Tax database, and mobile number and e-mail ID using one-time password validation. This is applicable only in cases where the mobile number and e-mail ID provided by the client are not seeded with Aadhaar.
Post verification, the KRAs must assign and inform the client about a unique client identifier called the ‘KRA Identifier’. The client may use the KRA Identifier for opening of an account with any other intermediary, without repeating the KYC process.
SEBI KYC guidelines
The SEBI KYC circular has also set guidelines for intermediaries to conduct the KYC process. Here’s what a SEBI-compliant KYC demands:
- Verification of Proof of Identity and Address (POI & POA)
-Aadhaar document submission (Aadhaar is verified through UIDAIs authentication/verification mechanism)
-PAN card submission (PAN is verified online using the Income Tax Database)
- Consent from the investor
- E-sign/ wet signature/ digital signature/ cropping signature
- Mobile & Email verification (Mobile and email are verified through One Time Password (OTP) or other verifiable mechanisms)
- Bank account verification (Bank account details are verified by Penny Drop mechanism or any other mechanism using API of the Bank)
- VIPV (Video In Person Verification)
-Activity Log with credentials of the person performing VIPV
-Investor (Client) in VIPV should be recognisable and in a live environment
-Random question by the VIVP and response from the investor
-Photograph of the customer to be matched with the one on IDs
-Geo-tagging to ensure the customer is in India
SEBI registered intermediary may implement their application (App) for conducting online KYC of investors. The RI (Regulated Intermediary) shall ensure that the process is a seamless, real-time, secured, end-to-end encrypted audiovisual interaction with the customer and that the quality of the communication is adequate to allow identification of the customer beyond doubt.
The RI shall use a ‘liveliness check’ to prevent spoofing and other fraudulent manipulations. It shall, before rolling out and periodically, conduct software and security audits and validation of its App. The RI may have additional safety and security features other than as prescribed above.
About IDfy
IDfy’s KYC solutions for capital markets offer all SEBI mandate checks that are quick, reliable, and accurate. We ensure compliance with the regulatory norms and confirm customer convenience across multiple levels.
You can embed our API-based solutions in your journey or work using a bulk upload mechanism. Apart from this, IDfy caters to an end-to-end verification journey by executing document OCR, tampering check, verification, masking, liveliness check, and more. IDfy’s statutory risk checks such as anti-money laundering, PAN-Aadhaar linkage, and more ensure that your organisation stays ahead of fraud.