Soon, you may be able to buy mutual fund units, shares,
insurance policies, bank deposits and other such financial products with a
single Know Your Customer (KYC) compliance.
Financial Intelligence Unit-India (FIU-Ind), the national
agency monitoring suspect financial transactions, has initiated discussions
with different financial sector regulators to build a common database, which
could be utilised by all financial services agencies.
On the sidelines of a conference, P K Tiwari, director, FIU-India,
said: “The recent move by the capital market regulator, providing a common KYC
for all securities market products, is a good initiative. It should be expanded
across all other segments of the market.”
At present, each sectoral regulators -- the Securities and
Exchange Board of India (Sebi), Insurance Regulatory and Development Authority,
the Reserve Bank of India, Pension Funds Regulatory and Development Authority
and the Forward Markets Commission have different KYC requirements. This means
users are now required to fill in numerous columns in multiple forms every time
they buy a new product.
"How many cards am I supposed to carry? In countries
like Hong Kong, there is only one. It serves all the different purposes. But
here we have PAN, TIN and UID. Each agency wants to promote its own product as
the valid proof, creating duplication. If this could be avoided, it is
welcome," said a chief compliance officer of a public sector bank.
Also, the data is collected and stored separately, thereby
not giving a complete picture of a client's financial history to the
intermediaries. This affects the quality of suspicious transactions' reports
sent by these entities to the FIU.
“If there is a common repository, the principal officers
would be able to access and check the client’s transactions in other regulatory
domains. This will enable us to form and relay a more informed opinion to FIU,”
said John Mathews, senior vice-president and head of client services, HDFC AMC.
He said the system introduced by Sebi, to take effect from January 1, would be
a good model.
In July, Sebi said the initial KYC would be undertaken only
once for capital market products like mutual funds, shares, etc. It proposed a
mechanism wherein one or more regulated KYC Registration Agency (KRA) would
undertake a KYC exercise at the stage of account opening for all clients.
The benefits of a KRA system include the execution of a
single and uniform KYC procedure across the securities market, saving of
record-keeping space, a centralised storage and dissemination of data. Specific
criteria and rules to identify 'beneficial ownership' is being worked out
jointly by Sebi and a committee set up by the finance ministry.
It will also help in saving time and burden of procedures
for clients, by undertaking the KYC procedure of identification only once,
subject to periodic update.
This common KYC database will help the different regulators
and intermediaries monitor suspicious transactions and terrorist financing more
efficiently, experts said. However, there are some practical difficulties.
Vikas Tandon, director-anti money laundering, South Asia, Citibank, said the
financial inclusion objective of the government should also be kept in mind.
"In capital markets, the PAN (income tax identification) has been accepted
as the universal proof and made mandatory. However, in other areas this may not
be possible. For example, banks have the obligation of financial inclusion.
Such differences need to be addressed."
Indian financial institutions are expected to spend $1
billion (Rs 4,900 crore) in the next few years to strengthen the systems and
processes for anti-money laundering measures. According to a study by the
United Nations Office on Drugs and Crime, the estimated money laundering flow
globally is close to $1.6 trillion, about 2.7 per cent of global GDP.
Though there is no specific data available for India,
experts estimate the amount of money laundering to be one to two per cent of
domestic GDP. "There are high levels of suspicious transactions. India is
now doing what Singapore and Malaysia had done a few years before in
implementing strong AML measures," said Mr Ian Selbie, solutions programme
director for the Asia-Pacific at Unisys, a firm specialising in anti-money
laundering and anti-fraud measures.
The financial industry will have to spend close to $100
million in installing the necessary software and together with training and
other process, the required expenditure will be at least $1 billion.
Source: http://www.business-standard.com/india/news/uniform-know-your-customer-likely-for-entire-financial-sector/454911/
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