The Ministry of Finance’s recent circular lays down a step-by-step process for banking and non-banking companies to use the Aadhaar no. for e-KYC process of their clients
Early this year, a new provision laying out the manner in which banking companies, financial institutions, intermediaries and persons carrying out business or profession (“reporting companies”) may conduct the KYC of their clients and beneficial owners was inserted in the Prevention of Money Laundering Act, 2002 (PMLA). The provision includes e-KYC under the Aadhaar Act, 2016, offline verification under the Aadhaar Act, passports issued to individuals and other official documents as notified by the Central Government for this purpose among the modes of verification of identity of reporting entities. Further, the anti-money laundering law allows reporting entities as well as those other than banking companies to accept the Aadhaar no. from their clients at the option of such client or if the client is receiving benefits under the Aadhaar Act so as to conduct identity authentication using the e-KYC method. This is subject to the union government’s necessary notification in this regard permitting the entity to this effect. Prior to the notification, the central government shall consult with the UIDAI and the respective regulators such the RBI, IRDAI, PFRDA, Financial Intelligence Unit and the Enforcement Directorate.
However, there remained ambiguity as to how can these entities practically accept Aadhaar and conduct electronic verification of their clients.
On May 9, 2019, the Department of Revenue under the Finance Ministry has issued a circular to address this ambiguity and has provided the steps these entities must follow in order to use the Aadhaar no. of their clients.
The circular concisely lays down this 5-step procedure. Below is a summary of the same:
- The entity shall first apply to the appropriate regulator seeking permission to use Aadhaar no. as part of its e-KYC. Each regulator has the option to specify a format for the purpose of this application.
- The respective regulator shall then examine the application on merits and may forward the application to the UIDAI along with its recommendations, if any. In case of any default, the regulator may alternatively dismiss the application at this stage itself.
- Upon receiving the application from the respective regulator, the UIDAI shall scrutinize the same. The UIDAI may seek additional information and may issue its own recommendations or conditions it deems fit and share the same with the Department of Revenue.
- Next, if satisfied, the central government shall issue necessary notification permitting the entity to carry out the e-KYC.
- Finally, based on the permission of the central government, the UIDAI will give its nod to the same.
As per the circular, both the regulators and the UIDAI are responsible to monitor compliances by the entities all long the application process.
Click here to see circular.
