KYC (Know Your Customers) compliance is one of the biggest pain points in the financial services industry. Generally paper based KYC process is costly, laborious and time consuming activity. Electronic Know Your Customer or e-KYC (electronic process of obtaining customer identification information) brought in a seamless way of completing KYC. Aadhaar in India provides cost effective and efficient mechanism for e-KYC. This mechanism brought KYC compliance in India much ahead as compared to most countries in Asia Pacific region.
Financial institutions are able to source new bank accounts, mutual fund accounts and insurance policies electronically through Aadhaar without the need for any paper document. Digital bank accounts / online insurance policies have seen a huge jump, primarily riding on Aadhaar infrastructure in last few years.
In a recent judgment, the Honorable Supreme Court rightly emphasised the importance of right to privacy and data protection. A portion of Section 57 of the Aadhaar Act that enabled private companies to use Aadhaar for establishing the identity of an individual, was held as "unconstitutional".
Post the Aadhaar verdict, multiple interpretations have emerged on the usage on e-KYC by private entities, particularly if an individual shares it voluntarily. Also there is confusion on handling and storage of existing Aadhaar data by private entities. This ambiguity will be put to rest once there is necessary guidance from the regulators.
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Both security of the customer's data and need for e-KYC has to be balanced. It has been reported that Government of India is planning to introduce comprehensive data protection legislation through the Personal Data Protection Bill, 2018 to ensure transparency, accountability and protection of customer's data.
Given the above benefits, e-KYC can be a win-win situation for all stakeholders- banks and financial institutions, customers, and the government if it is backed by adequate analysis of proportionally and provides data protection. Security and privacy of the customer has to be of paramount importance. The fine balance holds the key to unlock the bright future of financial sector in India.
(The writer is chief compliance officer, Canara HSBC Oriental Bank of Commerce Life Insurance)
Source: DNA Money