(We recently did a Webinar on the Aadhaar eSign for SEBI Registered Intermediaries – well attended by industry experts. Click here to view the recording. )
SEBI’s 24 April Circular is innocuously titled – “Clarification on Know Your Client (KYC) Process and Use of Technology for KYC”. However, its implications for the industry are explosive.
A typical onboarding process for a customer with a SEBI Intermediary like an Investment Advisory Firm, Portfolio Management Service etc. involves 3 main steps:
Until now – these 3 Steps have been mostly physical – revolving around exchange of paper KYC Forms, printed OVDs, paper-based agreements and physical KYC verification.
For SEBI Intermediaries – this physical process has always been a thorn in their flesh – with multiple follow ups, pesky couriers and long turn-around times.
This thorn has become a dagger during the lockdown. With strict curbs on movement and courier transit and social distancing set to continue – these physical flows seem unsustainable.
Luckily the SEBI Circular saves the day.
The SEBI Circular clarifies the use of two technologies to enable end-to-end digital onboarding.:
For KYC verification, SEBI has permitted the use of Video In Person Verification (‘VIPV’) via a specific process:
The above procedure mandates a “live” VIPV – where intermediaries will need to maintain your KYC agent on the other end of the video in real time.
This is, in essence, a direct replication of current processes except through means of video – eliminating the need for a physical, in-person verification.
Several technologies already exist for conducting VIPV in the above prescribed manner. Check out Karza or IDfy – who provide Video KYC Solutions.
Aadhaar eSign – prescribed in Schedule II of the Information Technology Act – allows people to generate and affix digital signatures on the fly using just their Aadhaar number and an OTP/Biometric Authentication.
Aadhaar eSign is also affixed on multiple pages of a document or a set of documents with a single transaction.
We have written about Aadhaar eSign on previous occasions.
The Circular prescribes Aadhaar eSign as a critical component for digitizing Steps 2 and 3 of the onboarding processes, namely:
A critical component of any KYC process is the collection of Officially Valid Documents or OVDs from the Customer. These are nothing but identification documents that a customer needs to furnish – usually government issued IDs like a PAN Card, Aadhaar Card, Driving License, Voter ID etc.
In the physical process – a Customer is required to:
SEBI prescribes Aadhaar eSign as a mode of attestation to digitize the OVD flow of Clause 4(ii) of the Circular:
In the traditional physical process, a customer will need to fill up the KYC form and then sign it – in multiple places. The process can be painstaking. With the Intermediary either delivering the documents to the customer via an agent, couriering the same and/or arranging for pickup after customer has signed it. This can lead to a simple process taking days, if not weeks.
SEBI digitizes the KYC form through Aadhaar eSign by way of Clause 4(iv) of the Circular:
Post KYC – most intermediaries also sign onboarding documents with their clients. These include, demat account opening forms, discretionary portfolio management agreements etc.
These documents are critical charter documents of the transaction enshrining the rights and obligations of both the investor and the intermediary.
In the traditional process – these documents – consisting of multiple pages must be signed on most pages by the customer. The customer cannot miss their signature on even one page where the sign is required. These documents are usually sent with the KYC form – making the process equally painstaking and time consuming.
SEBI’s circular, in Clause 3(c) explicitly recognizes Section 5 of the Information Technology Act, 2000 and states that – the eSign mechanism of Aadhaar shall be accepted in lieu of wet signature on the documents provided by the investor.
Therefore, in the new digital flow – a customer can sign the entire set of onboarding documents through a simple, single Aadhaar eSign transaction.
Until now, only stock brokers had adopted Aadhaar eSign as a mode of attestation of KYC documents (Leegality itself services several stock brokers).
Investment advisory firms, PMS Firms, Mutual Funds and Depository Participants had stayed away due to the regulatory uncertainty around Aadhaar eSign.
However, with this new circular, SEBI has made it emphatically clear that intermediaries will need to use Video KYC and Aadhaar eSign to go fully digital and paperless.
Digital onboarding is better for intermediaries:
It remains to be seen whether Intermediaries will take advantage of these benefits.
Leegality is India’s most trusted Aadhaar eSign solution – servicing top companies like Airtel Payments Bank, HDB Financial Services, Siemens Financial, Federal Bank among 200 others. We were also the execution platform of choice for the Orchid pharma insolvency – a 1100 Crore transaction signed by 22 Banks across the world. This is the highest valued transaction to be eSigned in India till date and it was done through Leegality.
Leegality’s Aadhaar eSign and Document Automation Platform with features such as – Aadhaar eSign gateway, template auto-population, sign verification and automated workflows – can power the majority of your digital onboarding journey.
The best part? You can integrate Leegality with your business with no installation – in less than a week!
Give us a spin. Try a free eSign here to experience the cutting edge slickness of our eSign interface.
If you like what you see – contact us to digitally transform your onboarding processes.
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