Standardized KYC framework — The need of the hour

Finance Minister Smt. Nirmala Sitharaman seems to have hit the nail on the head. She recently expressed deep concern over the large volume of unclaimed financial assets lying idle in the system—arising from unclaimed bank deposits, insurance and mutual fund payouts, pension settlements, and more. Over the years, various entities across the BFSI (Banking, Financial Services, and Insurance) sector have accumulated these unclaimed amounts and subsequently transferred them to their respective regulators.

- Saptarshi Roy Bardhan

For instance, the Reserve Bank of India (RBI)—the apex regulator for commercial banks—held a balance of ₹78,213 crore under its Depositor Education and Awareness Fund as of March 2024, reflecting a sharp 26% increase from the previous financial year. Similarly, SEBI—the capital market regulator—reported a balance of ₹533.17 crore in the Investor Protection and Education Fund (IPEF) at the close of FY24. Numerous demat accounts and mutual fund folios also remain inaccessible due to the inability to verify or trace their rightful owners.

This accumulation of unclaimed assets highlights a critical gap in the financial ecosystem—specifically, in the capturing and updating of customer records. While the onboarding process for opening bank accounts, demat accounts, or purchasing financial products is built around KYC (Know Your Customer) verification, as mandated under the Prevention of Money Laundering (PML) Act, the current system has limitations. Over time, customer details can become outdated due to reasons such as death, change of address, phone number, email, or even name changes. The lack of a standardized KYC updation mechanism across institutions only adds to customer inconvenience, as they are often forced to repeat the same process with each new service provider.