IFSCA Official has published a consultation paper on the Draft IFSCA (KYC Registration Agency) Regulations, 2024. These proposed regulations aim to create a framework for establishing and managing KYC Registration Agencies (KRAs) within the International Financial Services Centre (IFSC). The goal is to centralize KYC processes, streamline client onboarding, and enhance compliance with global standards.
Objective of the KRA Regulations
The regulations seek to:
Centralize Know Your Customer (KYC) records in the IFSC ecosystem.
Enable smooth client onboarding by regulated entities through standardized processes.
Enhance the efficiency of Customer Due Diligence (CDD) measures while maintaining compliance with international norms.
Challenges Addressed by the Proposed Framework
The Draft KRA Regulations aim to resolve several challenges faced by regulated entities and clients, including:
Duplication of KYC Processes: Clients currently need to undergo the KYC process multiple times when engaging with different regulated entities, leading to inefficiencies and unnecessary expenditure of time and resources.
Third-Party Reliance Issues: Regulated entities face difficulties in relying on third parties for CDD, as they may fail to obtain documents within the required timeline or satisfy compliance conditions.
Operational Inefficiencies: The absence of a centralized KYC repository results in fragmented processes, reducing the efficiency of regulated entities in managing client information.
Data Security Concerns: Decentralized systems pose risks to the safekeeping and confidentiality of client data, necessitating robust cybersecurity measures and regulatory oversight.
Global Compliance Gaps: Ensuring alignment with international standards, such as FATF recommendations, remains a challenge for entities operating in IFSC.
Key Highlights of the Draft KRA Regulations
Eligibility Criteria for KRAs
Entities eligible to register as KRAs must belong to one of the following categories:
Wholly owned subsidiaries of recognized stock exchanges in India or abroad.
Wholly owned subsidiaries of recognized depositories in India or abroad.
Wholly owned subsidiaries of existing SEBI-registered KRAs.
Functions and Obligations of KRAs
KRAs are responsible for:
Collecting and maintaining KYC documents from regulated entities.
Ensuring interoperability with other KRAs for seamless data sharing.
Safeguarding KYC records against loss, tampering, or unauthorized access.
Conducting independent validation of uploaded KYC records.
Ensuring compliance with the Digital Personal Data Protection Act, 2023 and implementing robust cybersecurity measures.
Functions and Obligations of Regulated Entities
Regulated entities will:
Perform initial KYC verification and upload data to the KRA system.
Retain physical copies of KYC documents for record-keeping.
Update client details in the KRA system when changes occur.
Use KYC data solely for its intended purpose, maintaining confidentiality.
Alignment with Existing Frameworks
The proposed regulations align closely with:
The AML-CFT Guidelines, which follow the recommendations of the Financial Action Task Force (FATF).
The SEBI (KYC Registration Agency) Regulations, 2011, which laid the groundwork for centralized KYC processes in India.
The Prevention of Money Laundering Act, 2002 (PMLA), ensuring compliance with anti-money laundering and counter-terrorism financing norms.
Benefits of the Proposed KRA Framework
Enhanced Efficiency: Reduces duplication and time spent on repetitive KYC processes.
Cost Savings: Centralized systems lead to significant manpower and resource optimization.
Improved Compliance: Adheres to international standards, bolstering IFSC's global reputation.
Data Security: Prioritizes the safety and privacy of client data under stringent cybersecurity protocols.
Public Consultation: Make Your Voice Heard
The IFSCA invites stakeholders and the public to share their views and suggestions on these draft regulations. Your feedback is crucial in shaping a robust and efficient framework for KRAs in IFSC.
In view of the above, comments and suggestions from public are invited on the draft IFSCA (KYC Registration Agency) Regulations, 2024. The comments may be sent by email to Shri Praveen Kamat, General Manager at praveen.kamat@ifsca.gov.in and to Shri Shubham Goyal, Assistant General Manager at goyal.shubham@ifsca.gov.in with the subject line “Comments on draft IFSCA (KYC Registration Agency) Regulations, 2024” latest by December27, 2024.
Conclusion
The Draft IFSCA (KYC Registration Agency) Regulations, 2024 represent a transformative step toward modernizing KYC processes in IFSC. By centralizing KYC records, the framework will drive efficiency, reduce redundancy, and enhance compliance with global standards, making IFSC a more attractive destination for financial services.
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Disclaimer: This post is for informational purposes only and does not constitute professional advice. While efforts are made to ensure accuracy, we do not guarantee the completeness or reliability of the information provided. Any reliance is at your own risk. Consult professionals for specific advice.
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