Video-Based KYC: RBI Extends VKYC to Legal Entities

In a significant move towards modernizing and streamlining the Know Your Customer (KYC) process, the Reserve Bank of India (RBI) has announced the expansion of the Video-based Customer Identification Process (VKYC) to include legal entities (LEs) in addition to individuals. This forward-thinking update is poised to enhance the efficiency, security, and convenience of the KYC process across the financial sector.

In December last year, the Reserve Bank of India had issued circular asking all entities concerned to upload the data pertaining to accounts of legal entities opened on or after April 1, 2021, onto the CKYCR. IRDAI further said REs should also ensure that in case of accounts of LEs opened prior to April 1, 2021, the KYC records are uploaded on to CKYCR during the process of periodic updation before the next transaction. CKYCR acts as centralised repository of KYC records of investors in the financial sector with uniform KYC norms and inter-usability of the KYC records across the sector.

What is VKYC?

Video-based Customer Identification Process (VKYC) is an innovative method that uses live, audio-visual interaction to verify customers. During this process, an authorized official of a regulated entity (RE) conducts facial recognition, customer due diligence (CDD), and document verification via a secure digital platform. Previously limited to individual customers, VKYC now extends its benefits to legal entities, transforming the onboarding and compliance landscape.

Why is This Update significant?

Earlier, VKYC primarily served individuals. With the RBI’s latest announcement, legal entities such as businesses, non-profits, and corporate organizations can leverage VKYC for onboarding and periodic KYC updates. This development represents a major leap towards digitizing financial services, offering entities a streamlined, secure, and remote alternative to traditional KYC methods.

Key Components of VKYC for Legal Entities

1. Authorized Signatories: Individuals authorized to act on behalf of the legal entity must complete VKYC to verify their identity and authority.
2. Beneficial Owners (BOs): Individuals with significant ownership or control over the legal entity also require VKYC verification.
3. Document Requirements: Entities must submit essential documents, including the Certificate of Incorporation, Memorandum and Articles of Association, and board resolutions authorizing signatories.

Benefits of VKYC for Legal Entities

Expanding VKYC to legal entities brings several benefits:

1. Enhanced Security: Advanced technologies like facial recognition and live verification significantly reduce identity fraud risks.
2. Operational Efficiency: VKYC accelerates the KYC process, saving time and resources for financial institutions and customers.
3. Global Compliance Standards: By aligning with international best practices, VKYC reinforces India’s commitment to a robust financial ecosystem.
4. Convenience: The remote nature of VKYC eliminates the need for physical visits, making it highly accessible in today’s digital-first world.

Challenges in Implementing VKYC for Legal Entities

While VKYC offers numerous advantages, implementing it for legal entities comes with challenges:

1. Technological Infrastructure: Financial institutions need robust infrastructure to support high-quality video interactions and secure data handling.
2. Compliance and Training: Ensuring uniformity in VKYC execution across all branches requires thorough training and adherence to new regulations.
3. Complex Ownership Structures: Verifying multiple signatories and beneficial owners can complicate the process.
4. Cost of Implementation: Setting up and maintaining VKYC systems can be costly, especially for smaller financial institutions.

Practical Applications of VKYC for Legal Entities

VKYC’s expansion benefits a wide range of legal entities:

• Small Businesses: Local businesses can quickly verify owners and authorized signatories, streamlining account opening.
• Non-Profit Organizations: NGOs can update their KYC records without visiting banks, especially useful for organizations operating in remote areas.
• Large Corporations: VKYC simplifies compliance for entities with complex ownership structures, ensuring all signatories and beneficial owners are verified efficiently.

Implementation and Compliance Requirements

To ensure successful implementation, regulated entities must:

• Adopt Advanced Technology: Build secure, in-house systems for VKYC processes.
• Ensure Customer Consent: Obtain explicit approval from customers before conducting VKYC.
• Record and Store Data Securely: Maintain all interactions and verification records as per RBI’s guidelines.
• Train Personnel: Equip staff with the necessary skills to execute VKYC effectively.

Conclusion

The RBI’s decision to extend VKYC to legal entities marks a pivotal moment in India’s journey toward financial digitalization. By introducing secure, efficient, and accessible KYC processes, the RBI is setting new standards for regulatory compliance. This update not only aligns India with global financial practices but also reflects the RBI’s commitment to fostering innovation. As financial institutions adapt to this transformation, VKYC promises to create a more seamless and secure banking experience for all.

With VKYC paving the way for a digital-first approach, the future of KYC is here. Financial institutions, businesses, and regulators must collaborate to harness its full potential, ensuring a safer and more inclusive financial ecosystem.