E-KYC Prcoess in Forex Transactions

KYC – Know your customer has become a very important aspect recently and is an integral part of compliance for every industry such Commercial Banking, Cooperative Banking, Foreign Exchange Management and even Non - Banking Financial Markets Industry and many other similar industries.

Since the above sectors collectively may be called as financial sectors are involved as channels outflow and inflow of funds within/outside the country they are prone to the risk of utilization of the funds by various agencies for supporting their illegal activities which is also called as Money Laundering. In order to prevent this, the government had introduced PMLA (Prevention of Money Laundering Act) and one of the most important aspect of this was to impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information in prescribed form to the regulatory Authorities.

Considering the importance of KYC, the government through Reserve Bank of India has been regularly improvising on the processes of KYC and giving Directions on the rules and regulations to be followed in this regard to the Regulated Entities.

With the introduction of Aadhaar Act, there was introduction of digital verification of the identity of the individuals which was widely accepted and adopted by most of the institutions as a method of authentication of Identity documents.

As a further initiative towards digitization, in the month of January 2020, Reserve Bank of India came up with up-dation in the Master Direction where Video Based Customer Identification Process and Digital KYC was included as a method of verifying the identity of the customers.

The circular was basically addressed to the Regulated Entities, however the players in the market like Authorised Dealers, other than banks have been excluded from this purview by mentioning the its applicability only to account based relationships.

Difference between the Video based Customer Identification Process and Digital KYC Process.

Video based Customer Identification Process	Digital KYC Process
The customer need not visit the Authorised Official for KYC Authentication	The customer, for the purpose of Digital KYC Process shall visit the location of the authorized official of the RE or vice-versa.
Photograph of the customer and geo tagging of the location to be done by a specifically designed app by the Regulated Entity.	Only Live Photograph of the customer to be taken along with the geo tagging of location.
There is no requirement of Customer Application Form (CAF)	In this case the Customer Application Form (CAF) has to be filled and Signature/Thumb Impression of the customer has to be taken.
The Accounts opened through this process shall be made operational only after the completion of Concurrent Audit of these processes.	There is no such requirement in this case.

The above are the basic differences between two processes. However, both the processes are based on Aadhaar OTP (one-time password) which is similarity between the two.

Further, the applicability of this in case of Foreign Exchange Industry needs a clarification as in both cases it is specifically mentioned that in case of establishing the account-based relationship, these processes are to be used. In case of FFMC’s and Authorised Dealers the relationship with customer is transaction based relationship.

This requires a further clarification and rather a modification so as to include transaction based relationship from Reserve Bank of India.