Streamlining Digital KYC for Reporting Entities: 13 Key Steps for AML/CFT Compliance in India

As part of India’s strict regulatory framework against money laundering and terrorism financing, businesses classified as "Reporting Entities" under the Prevention of Money Laundering Act, 2002 (PMLA) are mandated to conduct the Know Your Customer (KYC) process. Reporting Entities include banks, financial institutions, intermediaries, and Designated Non-Financial Businesses and Professions (DNFBPs).

To enhance efficiency and security, the KYC process can now be conducted digitally, streamlining compliance under the anti-money laundering (AML) and countering financing of terrorism (CFT) regulations. The digital KYC process leverages live customer photographs, location data, and validated documents to ensure a seamless, compliant workflow.

Here’s a streamlined 13-step guide to the digital KYC process for Reporting Entities in India:

13 Steps for a Secure and Compliant Digital KYC Process

1. Develop a Digital KYC Application

Reporting Entities must create or utilize a secure digital KYC platform designed to carry out the end-to-end verification process.

2. Secure Access Control

The application must be accessible only to authorized officers, secured by robust authentication mechanisms like login IDs, passwords, and one-time passwords (OTP).

3. Customer Interaction and Document Verification

Authorized officers meet the customer at a designated location or visit their premises for document verification. The customer must present Officially Valid Documents (OVDs).

4. Capture Live Photograph

A live photo of the customer is taken and embedded in the Customer Application Form (CAF). The photo includes a timestamp, GPS location, and officer details to ensure authenticity.

5. Ensure Proper Background

The live photo must have a white background, ensuring no other person is in the frame. Uploading pre-captured photos is prohibited.

6. Photograph Customer Documents

Live photos of the customer’s OVDs, such as Aadhaar or other identification, must be captured. These images should be free of distortion and include a watermark with timestamp and officer details.

7. Optimize Lighting and Readability

Ensure proper lighting for clear and legible document photos.

8. Populate CAF with Document Data

Details from OVDs, such as those with QR codes, can be scanned for automatic entry into the CAF. This minimizes manual errors and speeds up the process.

9. Customer OTP Verification

The customer receives an OTP to verify their details, which acts as a digital signature for the CAF. If using another person’s mobile number, the relationship must be documented in the CAF.

10. Officer Declaration

Authorized officers verify the legitimacy of the customer’s photograph and documents. A separate OTP confirms their declaration.

11. Generate Transaction ID

Upon completion, the system generates a unique transaction or reference ID, which the officer provides to the customer.

12. Final Information Verification

The officer confirms that:

• Customer details match the submitted documents.
• Live photos are consistent with OVD photos.
• All CAF fields are accurately filled.

13. CAF Submission and Digital Signature

The CAF is digitally signed by both the customer and the officer. A hard copy is also signed by the customer, which is uploaded for record-keeping.

Key Benefits of the Digital KYC Process

1. Enhanced Security: Incorporating live photos and GPS coordinates ensures the authenticity of the process.
2. Increased Efficiency: Automating data entry via QR codes and OTP validation simplifies compliance.
3. Regulatory Compliance: Adheres to India’s AML/CFT guidelines with accuracy and transparency.

Partner with I.P. Pasricha & Co for AML/KYC Compliance

At I.P. Pasricha & Co, we specialize in guiding businesses through complex regulatory landscapes like AML and KYC compliance. Our experts can help you implement seamless digital KYC systems that align with Indian regulations, ensuring security, efficiency, and full compliance.

Contact us today at [email protected] or visit www.ippcgroup.com to learn how we can support your compliance needs.