The Reserve Bank of India (RBI) has made changes to its master direction on Know-Your-Customer (KYC) norms, including allowing banks to carry out Aadhaar authentication/offline verification of an individual who voluntarily uses her Aadhaar number for identification, and adding ‘proof of possession of Aadhaar number’ to the list of Officially Valid Documents (OVD). In February, the Union Cabinet had approved promulgation of an ordinance to allow voluntary use of Aadhaar as identity proof for opening a bank account and getting a mobile phone connection. The ordinance was necessitated since a bill, passed by the Lok Sabha on January 4 but pending in the Rajya Sabha, would have lapsed with the dissolution of the current Lok Sabha, per NDTV.
Here are the other changes RBI made to its master direction on KYC (read the full document below):
- For identification of individuals who want to receive a benefit or subsidy under any scheme notified under the Aadhaar Act, the bank should obtain the customer’s Aadhaar details and carry out e-KYC authentication.
- For non-DBT beneficiaries, regulated entities should obtain a certified copy of any Officially Valid Document, including Aadhaar, containing details of his identity and address along with a recent photograph. It also says that regulated entities must ensure that non-DBT beneficiaries black-out their Aadhaar numbers when submitting Aadhaar for Customer Due Diligence.
- Registered entities other than banks may identify a customer through offline verification under the Aadhaar Act with his or her consent.
- In case a customer’s Officially Valid Document does not contain an updated address, certain deemed Officially Valid Documents can be submitted for proof of address, provided that the Officially Valid Document is updated with current address and submitted within 3 months.
- For non-individual customers, PAN or Form No. 60 of the entity (only PAN for companies and partnership firms) must be obtained apart from other entity-related documents. PAN or Form No. 60 of the authorised signatories must also be obtained.
- For existing bank account holders, PAN or Form No. 60 must be submitted within government-specified timelines, failing which the account will be temporarily frozen until these documents are submitted. However the RE must give the customer notice and a reasonable opportunity to be heard before doing so.
Amendments in the Aadhaar ordinance
In February the Union Cabinet approved the promulgation of an ordinance which would allow private companies to use Aadhaar for authentication and verification. The ordinance had the same changes to the Aadhaar Act as proposed by the Aadhaar and Other Laws (Amendment Bill), 2018, which was passed in the Lok Sabha in January, but later lapsed in the Rajya Sabha. Here are some of the main amendments from the Bill:
- Allows private bodies such as banks and telcos to use Aadhaar as one of the ‘know your customer’ (KYC) methods for authenticating users.
- Interchangeable use of authentication and verification: While the original Aadhaar Act uses the term verification only twice, the amendment bill uses the term 31 times. Under the ordinance, an entity can carry out authentication, provided they are compliant with the privacy and security regulations of the UIDAI. They can also be permitted to authenticate a user under the provisions of Parliamentary law or if the authentication is done in the “interest of the State.”
- A child Aadhaar card holder, within a period of six months of attaining 18 years of age, can make an application for cancellation of his Aadhaar number. Earlier a young adult did not have the provision of opting out.
- Allows for voluntary use of Aadhaar number for KYC under the Telegraph Act and Prevention of Money Laundering Act. A user can voluntarily identify herself through one of these modes: Aadhaar authentication, offline verification, passport or any other officially valid document.
- Provides for the establishment of the UIDAI Fund.
- It lays out a penalty mechanism for failure to comply with the provisions of the Act, such as appointment of an adjudicating officer, punishment for up to 3 years for violations, and also allows the Aadhaar number holder to file a complaint.
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