4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

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SEBI Clarification on KYC Process and Use of
Technology for KYC April 2020

Securities and Exchange Board of India M T W T F S S

1 2 3 4 5
CIRCULAR
6 7 8 9 10 11 12
SEBI/HO/MIRSD/DOP/CIR/P/2020/73
13 14 15 16 17 18 19
April 24, 2020
20 21 22 23 24 25 26

27 28 29 30
To,
« Mar
All Recognized Stock Exchanges
All Recognized Depositories
Stock Brokers through Recognized Stock Exchanges
Depository Participants through Depositories
Association of Mutual Funds in India
All Mutual funds and AMCs through AMFI
Portfolio Managers
KYC Registration Agencies (KRAs)
Qualified Registrar to an Issue and Share Transfer Agents

(QRTAs)

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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

Alternative Investment Funds (AIFs)

Collective Investment Schemes (CIS)
Custodians
Investment Advisors

Madam/Sir,

Subject: Clarification on Know Your Client (KYC)

Process and Use of Technology for KYC

1. Know Your Customer (KYC) and Customer Due Diligence

(CDD) policies as part of KYC are the foundation of an
effective Anti-Money Laundering process. The KYC process
requires every SEBI registered intermediary (hereinafter Popular Posts
referred to as ‘RI’) to collect and verify the Proof of Identity  112
ABCAUS Excel
(PoI) and Proof of Address (PoA) from the investor. Depreciation
Calculator FY
2. The provisions as laid down under the Prevention of 2018-19
Money-Laundering Act, 2002, Prevention of Money- under …
Laundering (Maintenance of Records) Rules, 2005, SEBI May 12, 2019
Master Circular on Anti Money Laundering (AML) dated
October 15, 2019 and relevant KYC / AML circulars issued Excel Form  91
from time to time shall continue to remain applicable. Further, 10E-Salary
the SEBI registered intermediary shall continue to ensure to Arrears Relief
obtain the express consent of the investor before undertaking calculator
AY …
online KYC.
January 22, 2020
3. SEBI, from time to time has issued various circulars to
simplify, harmonize the process of KYC by investors / RI. Status of  60
Constant technology evolution has taken place in the market Petition filed in
High Courts …
and innovative platforms are being created to allow investors
to complete KYC process online. SEBI held discussions with
December 29, 2018
various market participants and based on their feedback and
with a view to allow ease of doing business in the securities
Excel  16
market, it has been decided to make use of following
Automatic
technological innovations which can facilitate online KYC: Income Tax
TDS Challan
ITNS-281 …
a. eSign service is an online electronic signature
May 3, 2019
service that can facilitate an Aadhaar holder to forward
the document after digitally signing the same provided
Revised Excel 14
the eSign signature framework is operated under the Auto Salary
provisions of Second schedule of the Information TDS Certificate
Technology Act and guidelines issued by the controller. Form …
February 14, 2019


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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

b. In terms of PML Rule 2 (1) (cb) “equivalent e- Tweet FAQ  10

document” means an electronic equivalent of a GST ITC-04.
Downloading,
document, issued by the issuing authority of such
preparing, removing …
document with its valid digital signature, including
October 24, 2017
documents issued to the Digital Locker account of the
investor as per Rule 9 of the Information Technology
CBDT 9
(Preservation and Retention of Information by
extended ITR
Intermediaries Providing Digital Locker Facilities) Rules, filing and Tax
2016. Audit …
September 27, 2019
c. Section 5 of the Information Technology Act, 2000
recognizes electronic signatures (which includes digital 9
FAQ-GST
signature) and states that where any law provides that
Quarterly
information or any other matter shall be authenticated return by
by affixing the signature or any document shall be persons with turnover …
signed or bear the signature of any person then such October 15, 2017
requirement shall be deemed to have been satisfied, if
such information or matter is authenticated by means of Tags
a digital signature affixed in such manner as prescribed
addition u/s 68 (32)
by the Central Government. Therefore, the eSign
mechanism of Aadhaar shall be accepted in lieu of wet budget 2017-18 (32)

signature on the documents provided by the investor. ca misconduct (51)

Even the cropped signature affixed on the online KYC cash deposit in bank (31)
form under eSign shall also be accepted as valid
CBDT (43)
signature.
cbdt circular (103)
4. In order to enable the Online KYC process for establishing CBDT Instruction (78)
account based relationship with the RI, Investor’s KYC can
cbdt notification (176)
be completed through online / App based KYC, in-person
cbdt order (38)
verification through video, online submission of Officially Valid
Document (OVD) / other documents under eSign, in the cbdt press release (36)
following manner: cgst circular (35)

cgst notification (52)

i. The investor visits the website/App/digital platform of
the RI and fills up the online KYC form and submits cit revision 263 (64)
requisite documents online. concealment penalty (55)

custom circular (83)

ii. The name, photograph, address, mobile number, demonetisation (79)

email ID, Bank details of the investor shall be captured due date extension (109)
online and OVD / PAN / signed cancelled cheque shall
e-way bill (60) faq (65)
be provided as a photo / scan of the original under
GST circular (55)
eSign and the same shall be verified as under:
GST Council Meeting (63)
a. Mobile and email is verified through One Time gst faq (86) GSTR-3B (37)
Password (OTP) or other verifiable mechanism.
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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

The mobile number/s of investor accepted as part GST rates (42)

of KYC should preferably be the one seeded with gst refund (38) IBBI (47)
Aadhaar. (the RI shall ensure to meet the
icai (29)
requirements of the mobile number and email as
detailed under SEBI circular no. income tax prosecution (34)
CIR/MIRSD/15/2011 dated August 02, 2011) itat (127) ITAT Delhi (37)

mca circular (38)

b. Aadhaar is verified through UIDAIs
authentication / verification mechanism. Further, in MCA notification (150)

terms of PML Rule 9 (16), every RI shall, where order u/s 119 (34)
the investor submits his Aadhaar number, ensure penalty 271(1)(c) (54)
that such investor to redact or blackout his
penalty u/s 271(1)(c) (56)
Aadhaar number through appropriate means
where the authentication of Aadhaar number is Press Release (393)
not required under sub-rule (15). RI shall not reasons recorded (39)
store/ save the Aadhaar number of investor in reopening 148 (53)
their system. e-KYC through Aadhaar
Reopening us 147 (45)
Authentication service of UIDAI or offline
verification through Aadhaar QR Code/ XML file sebi circular (50)
can be undertaken, provided the XML file or service tax notification (27)
Aadhaar Secure QR Code generation date is not
transfer and postings (34)
older than 3 days from the date of carrying out
unexplained cash credits (31)
KYC. In terms of SEBI circular No.
CIR/MIRSD/29/2016 dated January 22, 2016 the validity of notice u/s 148 (41)
usage of Aadhaar is optional and purely on a Withdrawal of 2000 500 Bank
voluntary basis by the investor. Notes (69)

c. PAN is verified online using the Income Tax

Database.

d. Bank account details are verified by Penny

Drop mechanism or any other mechanism using
API of the Bank. (Explanation: based on bank
details in the copy of the cancelled cheque
provided by the investor, the money is deposited
into the bank account of the investors to fetch the
bank account details and name.) The name and
bank details as obtained shall be verified with the
information provided by investor.

e. Any OVD other than Aadhaar shall be

submitted through Digiocker / under eSign
mechanism.


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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

iii. In terms of Rule 2 (d) of Prevention of Money-

Laundering (Maintenance of Records) Rules, 2005
(PML Rules) “Officially Valid Documents” means the
following:

a. the passport,

b. the driving licence,

c. proof of possession of Aadhaar number,

d. the Voter’s Identity Card issued by Election

Commission of India,

e. job card issued by NREGA duly signed by an

officer of the State Government and

f. the letter issued by the National Population

Register containing details of name, address, or
any other document as notified by the Central
Government in consultation with the Regulator.

iv. Further, Rule 9(18) of PML Rules states that in case

OVD furnished by the investor does not contain
updated address, the document as prescribed therein in
the above stated Rule shall be deemed to be the OVD
for the limited purpose of proof of address.

v. PML Rules allows an investor to submit other OVD

instead of PAN, however, in terms of SEBI circular No.
MRD/DoP/Cir- 05/2007 dated April 27, 2007 the
requirement of mandatory submission of PAN by the
investors for transaction in the securities market shall
continue to apply.

vi. Once all the information as required as per the online

KYC form is filled up by the investor, KYC process
could be completed as under:

a. The investor would take a print out of the

completed KYC form and after affixing their wet
signature, send the scanned copy / photograph of
the same to the RI under eSign, or

b. Affix online the cropped signature on the filled

KYC form and submit the same to the RI under 

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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

eSign.

vii. The RI shall forward the KYC completion intimation

letter through registered post/ speed post or courier, to
the address of the investor in cases where the investor
has given address other than as given in the OVD. In
such cases of return of the intimation letter for wrong /
incorrect address, addressee not available etc, no
transactions shall be allowed in such account and
intimation shall also sent to the Stock Exchange and
Depository.

viii. The original seen and verified requirement under

SEBI circular no. MIRSD/SE/Cir-21/2011 dated October,
5 2011 for OVD would be met where the investor
provides the OVD in the following manner:

i. As a clear photograph or scanned copy of the

original OVD, through the eSign mechanism, or;

ii. As digitally signed document of the OVD,

issued to the DigiLocker by the issuing authority.

ix. SEBI vide circular no. MIRSD/Cir- 26 /2011 dated

December 23, 2011 had harmonized the IPV
requirements for the intermediaries. In order to ease the
IPV process for KYC, the said SEBI circular pertaining
to IPV stands modified as under:

i. IPV/ VIPV would not be required when the KYC

of the investor is completed using the Aadhaar
authentication / verification of UIDAI.

ii.IPV / VIPV shall not be required by the RI when

the KYC form has been submitted online,
documents have been provided through digiocker
or any other source which could be verified online.

5. Features for online KYC App of the RI – SEBI registered

intermediary may implement their own Application (App) for
undertaking online KYC of investors. The App shall facilitate
taking photograph, scanning, acceptance of OVD through
Digilocker, video capturing in live environment, usage of the
App only by authorized person of the RI. The App shall also
have features of random action initiation for investor


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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

response to establish that the interactions not pre-recorded,

time stamping, geo-location tagging to ensure physical
location in India etc is also implemented. RI shall ensure that
the process is a seamless, real-time, secured, end-to-end
encrypted audiovisual interaction with the customer and the
quality of the communication is adequate to allow
identification of the customer beyond doubt. RI shall carry out
the liveliness check in order to guard against spoofing and
such other fraudulent manipulations. The RI shall before
rolling out and periodically, carry out software and security
audit and validation of their App. The RI may have additional
safety and security features other than as prescribed above.

6. Feature for Video in Person Verification (VIPV) for

Individuals – To enable ease of completing IPV of an
investor, intermediary may undertake the VIPV of an
individual investor through their App. The following process
shall be adopted in this regard:

i. Intermediary through their authorised official,

specifically trained for this purpose, may undertake live
VIPV of an individual customer, after obtaining his/her
informed consent. The activity log along with the
credentials of the person performing the VIPV shall be
stored for easy retrieval.

ii. The VIPV shall be in a live environment.

iii. The VIPV shall be clear and still, the investor in the
video shall be easily recognisable and shall not be
covering their face in any manner.

iv. The VIPV process shall include random question and

response from the investor including displaying the
OVD, KYC form and signature or could also be
confirmed by an OTP.

v. The RI shall ensure that photograph of the customer

downloaded through the Aadhaar authentication /
verification process matches with the investor in the
VIPV.

vi. The VIPV shall be digitally saved in a safe, secure

and tamper-proof, easily retrievable manner and shall

bear date and time stamping.

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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

vii. The RI may have additional safety and security

features other than as prescribed above.

7. The Stock Exchanges and Depositories are directed to:

a. bring the provisions of this circular to the notice of the

Stock Brokers, Depository Participants and also
disseminate the same on their websites.

b. make necessary amendments to the relevant bye-

laws, rules and regulations for the implementation of the
above decision in co-ordination with one another to
achieve uniformity in approach.

c. communicate to SEBI, the status of the

implementation of the provisions of this circular Monthly
Development Report of the following month; and

d. monitor the compliance of this circular.

8. This circular is issued in exercise of powers conferred

under Section 11(1) of the Securities and Exchange Board of
India Act, 1992 to protect the interests of investors in
securities and to promote the development of, and to regulate
the securities markets.

9. This circular is available on SEBI website at sebi.gov.in.

Yours faithfully,

D. Rajesh Kumar
General Manager
Tel. No: 022 -26449242
Email: [email protected]

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4/30/2020 SEBI Clarification on KYC Process and Use of Online Technology

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