New KYC must strike a balance between necessity and convenience

From the perspective of both customer convenience and operational efficiency, any move that ends unnecessary duplication is welcome. Hence the finance ministry’s proposal to replace the multiplicity of know-your-customer (KYC) checks carried out by different financial sector entities with a single all-purpose KYC is good news. Like the UID (unique identification) number that is intended to replace the multitude of documents such as passport, driving licence, voters’ identity card, ration card, etc presently accepted as ‘proof ’ of identity, the proposed KYC will serve as one conclusive check for all financial transactions.

At present, banks verify the antecedents of potential customers before they allow them to open a bank account. Likewise, depositories , brokerages, mutual funds, insurance and pension players do their own check before they transact on behalf of their customers. This leads to unnecessary duplication and harassment, apart from sheer waste of precious man hours that could be better utilised elsewhere. At the margin, it probably also discourages retail investors from investing their savings in financial instruments rather than in gold and real estate.

In the past when all records were paper-based , perhaps there was no alternative to such pointless duplication. But today, when technology has made it possible to capture all relevant information and make it accessible to different players seamlessly, there is no reason to replicate processes. Given the increasing evidence of terror-financing and black money that beset our economy, KYC diligence is an unfortunate part of life that all of us will have to live with. The solution is to strike a balance between necessity on the one hand and convenience and efficiency, on the other.

This is where a single KYC could be a major improvement over the present system of multiple KYCs. Provided, and this is an important caveat, the proposed omnibus KYC combines the best of both worlds — it’s rigorous without being cumbersome. Unfortunately, as the experience of Saral (the simplified income tax returns introduced some years ago) has shown, that is a tall order.