CKYC 2.0: Big news for common people. In August, Indian banks and insurance companies are set to introduce a unified customer identification system, which will eventually extend to asset managers. This initiative, known as “Central Know-Your-Customer 2.0” (CKYC), aims to streamline the process for customers by allowing them to access financial products without the need to submit multiple identification documents.
By simply providing consent, institutions can retrieve the necessary data from a central registry when customers open accounts or update their information. India has been working towards a system akin to those in Singapore and various European nations, where a digital identity framework facilitates access to a wide array of financial services through a single verification process.
Additionally, this new system is expected to enhance fraud prevention through improved monitoring capabilities. Capital market firms, including mutual funds and brokerages, are anticipated to adopt this system by the end of the year as regulators finalize sector-specific requirements. The Reserve Bank of India, the Securities and Exchange Board of India, and the insurance regulator are collaborating on this project, although they have not yet commented on the initiative. This development comes as India seeks to boost engagement with financial products following significant strides in financial inclusion, with approximately 89% of adults holding bank accounts as of 2024.
However, participation in mutual funds, insurance, and pensions remains relatively low, highlighting the need for this new system. Despite having a central registry with records for around 1.2 billion customers, its effectiveness has been hampered by concerns over data quality, including issues of duplication and incomplete information.
Because the RBI didn’t accept records taken from the registry, investors had to resubmit the same documents to avail other financial products. In the new system, records will have a ‘confidence score’ on the accuracy of the data and whether a firm has verified the information. Financial institutions will need to obtain customer consent via a one-time password (OTP) to access these verified records, according to an operating guidelines document seen by Reuters.
DP Singh, joint chief executive of SBI Funds Management, India’s largest asset management company, said CKYC could significantly expand the industry’s investor base. “If even a small portion of eligible customers start investing after universal customer identification, it will be of huge benefit,” Singh said, adding that the framework could be implemented for the industry within four months. For example, State Bank of India, the fund house’s largest shareholder and the country’s largest bank by assets, has 50 crore (500 million) bank accounts.