Chapter 8: Procedure for Account Opening: Know Your Client (KYC) Process

Know Your Client (KYC) is a standardized statutory customer identification procedure mandated by financial regulators worldwide to prevent money laundering, terrorist financing, financial fraud, and identity theft. In India, the legal foundation of KYC is rooted in the Prevention of Money Laundering Act, 2002 (PMLA) and the SEBI (KYC Registration Agency) Regulations, 2011.

Historically, an investor was required to submit physical KYC documentation, including self-attested proofs of identity and address, separately every time they opened an account with a new broker, mutual fund, portfolio manager, or depository participant. This duplicated paperwork and created significant friction.

To streamline this process, SEBI introduced the centralized KYC Registration Agency (KRA) framework, followed by Central KYC (CKYC), establishing a unified system where an investor completes KYC once and can then transact across any registered capital market intermediary without repeating the verification process.

To complete the standard KYC process, an investor must provide verified documentary evidence covering three foundational pillars:

1. Proof of Identity (PoI)

Documents officially designated as valid PoI include:

• Permanent Account Number (PAN) card (mandatory for all adult domestic investors).
• Passport (with valid validity period).
• Aadhaar card (Offline XML verification or masked Aadhaar).
• Voter Identity Card issued by the Election Commission of India.
• Driving License.

2. Proof of Address (PoA)

Documents officially designated as valid PoA include:

• Aadhaar card (displaying residential address).
• Passport.
• Voter ID Card.
• Driving License.
• Utility bills (electricity, piped gas, telephone, or water bill) not older than 2 or 3 months (where allowed by regulations for supplementary verification).
• Bank account statement or passbook with complete residential address and recent transactions (verified by bank seal/attestation).

3. Bank Account Proof

To ensure that all market funds flow to and from a verified account, investors must submit:

• A personalized canceled cheque leaf bearing the account holder's pre-printed name, account number, and IFSC code.
• Alternatively, a verified bank statement or passbook front page displaying identical details.

Modern account opening in India is largely digital, paperless, and contactless, leveraging the 'India Stack' digital infrastructure:

1. Digital e-KYC and DigiLocker Integration

• Aadhaar-based OTP e-KYC: An investor submits their Aadhaar number to receive a secure One-Time Password (OTP) from UIDAI. Upon verification, UIDAI shares verified demographic data (name, address, date of birth, photo) electronically with the intermediary.
• DigiLocker Verification: The intermediary connects to the Government of India's DigiLocker repository via secure APIs, enabling investors to grant one-time consent to fetch officially verified digital copies of their PAN, Aadhaar, and driving license.

2. In-Person Verification (IPV) and Video IPV (VIPV)

Under SEBI guidelines, every individual client must undergo mandatory In-Person Verification (IPV) to ensure that the individual opening the account is genuinely who they claim to be.

• Physical IPV: Carried out by an authorized employee of the broker or DP visiting the client or meeting in person, signing and stamping the KYC form as 'Verified'.
• Video IPV (VIPV): A secure digital alternative where the client joins a live video session with the intermediary. During the call:
  • The client displays their original PAN card and address proof to the camera.
  • The system captures a live photograph of the client with geo-tagging (GPS location) and time-stamping.
  • The client reads a random dynamic verification code or answering identity validation questions.
  • Facial recognition algorithms match the live client photo with the photograph on the official ID card.