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Introduction
The KYC or Know Your Customer feature is mandatory when investors are indulging in the demat account opening process. The main purpose of KYC is that every single rupee invested in the stock market is accounted for and there are next to no chances of investors falling prey to fraudulent behaviors.
The KYC was introduced by SEBI or the Securities and Exchange Board of India for this very purpose. The KYC process, when investors open a trading account in India, helps provide them accountability and safeguards their investments.
In this blog, we will read more about the importance of the KYC process and why re-KYC is important.
What is KYC for Demat Account
KYC helps banks and financial institutions verify the identity of an investor during the demat account opening process before they start their trading journey. The KYC process is a one-time exercise that enables these banks or financial institutions to collect all the information related to the investor and store it in a common database. In India, the CERSAI or Central Registry of Securitisation Asset Reconstruction and Security Interest of India saves all this information. From here, India’s four main regulators; SEBI, RBI, IRDAI and PFRDA can access this information.
What is Re-KYC
The Re-KYC process helps banks and financial institutions remain updated on a customer’s latest personal details and contact information. With the help of the re-KYC, these institutions ensure that the information provided by the investor during the demat account opening process is not outdated.
Requirement of Re-KYC
After the demat account opening process during which KYC is done, banks or financial institutions will ask for Re-KYC form investors at predefined intervals. This helps them stay up-to-date on their customers’ information. If after opening the demat account, any details of the investor change, then the bank or financial institute’s record will be updated with the help of the re-KYC.
How Customers Are Classified for re-KYC
The classification of customers for re-KYC determines how frequently they need to participate in the re-KYC process put forth by the bank or the financial institution. Below is a list of the customer classifications followed by these institutions.
- High-Risk Customers: When it comes to high-risk customers like politically exposed persons (PEPs) or those with high net worth, banks and financial institutions expect them to do a re-KYC every two years. For the updation process, the customer has to visit the institution, with the updated information, KYC details and the address proof.
- Medium-Risk Customers: The second categorisation is for medium-risk customers which include individuals whose business activities, transaction history and even geographic location might signal a moderate risk for money laundering or even terrorist financing. For such customers, the re-KYC is carried out every eight years and needs to be done in person.
- Low-Risk Customers: Low-risk customers are customers with a stable and verifiable source of income. For such customers, the re-KYC process is done every 10 years and can be done via internet or mobile banking.
How to Submit Re-KYC Documents
Below is a step-by-step process to submit re-KYC documents.
- Step 1: Visit your bank or financial institution where you followed the demat account opening process.
- Step 2: Submit the fully-signed re-KYC form together with a copy of all the valid KYC documentation
- Step 3: If resident customers have an Aadhar Number and an original PAN, then they can register a re-KYC through video call.
- Step 4: If there are no changes in information for a customer, a signed self-declaration form needs to be submitted either physically or via email, post, courier etc.
Conclusion
The main aim of the re-KYC process is to maintain integrity and keep the security aspects of the demat account and the stock market updated and safe. After the KYC process which a customer has to take part in during the demat account opening, the re-KYC process carries forward the security blanket established during the demat account opening. As the re-KYC process helps banks and financial institutions stay updated regarding all information about their customers, the chances of fraudulent behavior go down to a great extent.
