Demat Account KYC Details: What are the norms followed? MintGenie explains

Demat Account KYC Details: Before opening a demat account to dive into the world of trading and investments, individuals must adhere to certain KYC (Know Your Customer) norms mandated by regulatory authorities. 

These norms serve to verify the identity and credentials of account holders, ensuring transparency and security in financial transactions. In 2002, the Reserve Bank of India (RBI) introduced KYC guidelines for banks to prevent their misuse for illicit activities like money laundering or terrorist financing.

Also Read: Demat Account: How to choose between full-service and discount brokers?

The primary objective is to enable banks to thoroughly understand their customers and their financial activities, thereby allowing them to manage associated risks more effectively. Following the RBI's lead, market regulator Securities and Exchange Board of India (SEBI) also implemented KYC norms for clients in the securities market.

Understanding KYC

KYC is an acronym for “Know Your Client” in market terms. KYC is the mandatory process of identifying and verifying the client's identity when opening an account and periodically over time.

In other words, banks and other financial institutions must ensure that their clients are genuinely who they claim to be.

Also Read: Can I convert my single demat account into a joint account?

KYC encompasses various steps aimed at ensuring financial institutions have a comprehensive understanding of their clients. These steps include establishing the identity of customers, comprehending the nature of their financial activities, and validating the legitimacy of the source of funds. 

Additionally, KYC protocols involve assessing the risks of money laundering associated with customers to safeguard against illicit financial activities.

Importance of KYC in demat account opening

KYC is a mandatory requirement when opening a demat account. It ensures that every penny that makes its way to the Indian stock market is accounted for and has a paper trial. 

Every SEBI-registered intermediary is mandated to obtain and verify the Proof of Identity (PoI) and Proof of Address (PoA) from clients at the onset of an account-based relationship. SEBI-registered intermediaries are prohibited from opening or maintaining anonymous accounts, accounts under fictitious names, or accounts for undisclosed or unverified persons.

Also Read: Can you open a demat account in India as an NRI?

To enhance KYC norms and ensure the identification of every participant in the securities market, PAN (Permanent Account Number) is mandated as the unique identification number. This measure aims to establish a robust audit trail for all transactions in the securities market, regardless of the transaction amount.

In October 2023, SEBI issued a comprehensive set of KYC (Know Your Customer) regulations for investors through a master circular.  According to this circular, all Sebi-registered intermediaries will use the same KYC form and supporting documents. 

The account opening form for clients will consist of two parts: Part I will be the KYC form capturing basic client details, while Part II will gather additional information pertinent to the intermediary's area of activity. However, the master circular primarily addresses the provisions outlined in Part I of the KYC form.

The documents that will be accepted as proof of identity include a passport, driving license, Aadhaar number, voter's ID card, letter issued by the NPR, and any other document as notified by the central government in consultation with the regulator. 

Additionally, the in-person verification conducted by one Sebi-registered intermediary can be trusted by another, and the e-KYC service introduced by UIDAI will be recognised as a valid method for KYC verification, as stipulated in the SEBI guidelines outlined in the master circular.

Methods of completing the KYC process

The KYC process can typically be completed in three main ways:

In-Person Verification (IPV): This involves physically visiting a designated location, such as a bank branch or financial institution's office, and providing original documents for verification. A representative of the institution verifies the identity and documents of the applicant in person.

Video KYC: With advancements in technology, many institutions offer video KYC facilities where applicants can complete the verification process remotely via a video call. Applicants need to display their original documents to the camera for verification, and a representative conducts the verification process in real-time.

Also Read: How to update personal details in my demat account?

Digital KYC: Some institutions provide digital KYC options where applicants can complete the verification process entirely online. Applicants upload scanned copies or images of their documents through a secure online portal or mobile app. The institution then verifies the authenticity of the documents electronically using automated systems or manual checks.

FAQs

Is KYC mandatory for opening a demat account?

Yes, KYC (Know Your Customer) is mandatory for opening a demat account. It involves verifying the identity and address of the account holder.

Will my broker freeze my demat account if it's inactive for a long time?

If your demat account remains inactive for an extended period, your depository participant may freeze it as a precautionary measure. Reactivating the demat account typically involves completing the e-KYC (Know Your Customer) process again.

Who are KRA's?

KRAs (KYC Registration Agencies) are entities authorised by SEBI to maintain KYC records of investors on behalf of SEBI-registered intermediaries.

Can I open a demat account without submitting a PAN card?

No, submitting a PAN (Permanent Account Number) card is mandatory for opening a demat account as per regulatory requirements.

What are the mandatory KYC details required for updating your demat account?

Mandatory KYC details for updating your demat account typically include proof of identity (such as an Aadhaar card, passport, or driver's license), proof of address (like utility bills or rental agreements), and PAN card information.