KYC - video verification process

RBI circular dated 9th January, 2020 wherein they have allowed video based customer identification process (CIP) to establish the KYC of the clients being on boarded. Elaborate rules have been laid down for the same purpose, including procedure for carrying out live CIP, software & security audit of the live CIP process, etc. All accounts to be opened under live CIP shall be done only after concurrent audit to ensure robustness of the process.

This is supposed to be ease of doing business, but as we have seen from the past experiences, it becomes anything but that. Increasingly, it is becoming difficult to open a bank a/c inside of 3 weeks from the banks, but yet as we have seen, instances of fraud are being committed by the bank's employees themselves as we have seen in the PNB and PMC Bank fiasco.

RBI circular follows

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11783&Mode=0

Government of India, vide Gazette Notification G.S.R. 582(E) dated August 19, 2019 and Gazette Notification G.S.R. 840(E) dated November 13, 2019, has notified amendment to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. Further, with a view to leveraging the digital channels for Customer Identification Process (CIP) by Regulated Entities (REs), the Reserve Bank has decided to permit Video based Customer Identification Process (V-CIP) as a consent based alternate method of establishing the customer’s identity, for customer onboarding.

2. The consequent changes carried out in the Master Direction on KYC dated February 25, 2016, with the aforementioned amendments to the PML Rules and V-CIP are as under:

A. Changes due to amendments to the PML Rules

a) “Digital KYC” has been defined in Section 3 as capturing live photo of the customer and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorised officer of the Reporting Entity (RE) as per the provisions contained in the Act. Steps to carry out the Digital KYC process have also been stipulated.

b) “Equivalent e-document” has been defined in Section 3 as an electronic equivalent of a document, issued by the issuing authority of such document with its valid digital signature including documents issued to the digital locker account of the customer as per Rule 9 of the Information Technology (Preservation and Retention of Information by Intermediaries Providing Digital Locker Facilities) Rules, 2016.

c) Section 16 has been amended and accordingly,

I. customer, for the purpose of Customer Due Diligence CDD) process, shall submit:

1. the Aadhaar number where he is desirous of receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 (18 of 2016); or he decides to submit his Aadhaar number voluntarily to a banking company or any reporting entity notified under first proviso to sub-section (1) of section 11A of the PML Act; or
2. the proof of possession of Aadhaar number where offline verification can be carried out; or
3. the proof of possession of Aadhaar number where offline verification cannot be carried out or
4. any Officially Valid Document (OVD) or the equivalent e-document thereof containing the details of his identity and address; and
5. the Permanent Account Number or the equivalent e-document thereof or Form No. 60 as defined in Income-tax Rules, 1962; and
6. such other documents including in respect of the nature of business and financial status of the client, or the equivalent e-documents thereof as may be required by the RE.

II. Provided that where the customer has submitted

1. Aadhaar number under paragraph (c.I.i) above to a bank or to a RE notified under first proviso to sub-section (1) of section 11A of the PML Act, such bank or RE shall carry out authentication of the customer’s Aadhaar number using e-KYC authentication facility provided by the Unique Identification Authority of India.
2. proof of possession of Aadhaar under clause (c.I.ii) above where offline verification can be carried out, the RE shall carry out offline verification
3. an equivalent e-document of any OVD, the RE shall verify the digital signature as per the provisions of the Information Technology Act, 2000 (21 of 2000) and any rules issues thereunder and take a live photo as specified under Annex I of the Master Direction.
4. proof of possession of Aadhaar number where offline verification cannot be carried out under clause (c.I.iii) above or any OVD under clause (c.I.iv), the RE shall carry out verification through digital KYC as specified under Annex I of the Master Direction.
   Provided, for a period not beyond such date as may be notified by the Government for a class of REs, instead of carrying out digital KYC, the RE pertaining to such class may obtain a certified copy of the proof of possession of Aadhaar number or the OVD and a recent photograph where an equivalent e-document is not submitted.

III. Equivalent e-document has also been permitted for accounts of non-individual customer.

IV. Where a customer has provided his Aadhaar number under paragraph (c.I.i) above for identification and wants to provide a current address, different from the address as per the identity information available in the Central Identities Data Repository, he may give a self-declaration to that effect to the Regulated Entity.

B. Changes due to introduction of Video based Customer Identification Process (V-CIP)

a) Definition of V-CIP has been inserted in Section 3 of the Master Direction

b) The process of V-CIP has been specified in Section 18 in terms of which, REs may undertake live V-CIP, to be carried out by an official of the RE, for establishment of an account based relationship with an individual customer, after obtaining his informed consent and shall adhere to the following stipulations:

i. The official of the RE performing the V-CIP shall record video as well as capture photograph of the customer present for identification and obtain the identification information as below:

• Banks: can use either OTP based Aadhaar e-KYC authentication or Offline Verification of Aadhaar for identification. Further, services of Business Correspondents (BCs) may be used by banks for aiding the V-CIP.
• REs other than banks: can only carry out Offline Verification of Aadhaar for identification.

ii. RE shall capture a clear image of PAN card to be displayed by the customer during the process, except in cases where e-PAN is provided by the customer. The PAN details shall be verified from the database of the issuing authority.

iii. Live location of the customer (Geotagging) shall be captured to ensure that customer is physically present in India

iv. The official of the RE shall ensure that photograph of the customer in the Aadhaar/PAN details matches with the customer undertaking the V-CIP and the identification details in Aadhaar/PAN shall match with the details provided by the customer.

v. The official of the RE shall ensure that the sequence and/or type of questions during video interactions are varied in order to establish that the interactions are real-time and not pre-recorded.

vi. In case of offline verification of Aadhaar using XML file or Aadhaar Secure QR Code, it shall be ensured that the XML file or QR code generation date is not older than 3 days from the date of carrying out V-CIP.

vii. All accounts opened through V-CIP shall be made operational only after being subject to concurrent audit, to ensure the integrity of process.

viii. RE shall ensure that the process is a seamless, real-time, secured, end-to-end encrypted audiovisual interaction with the customer and the quality of the communication is adequate to allow identification of the customer beyond doubt. RE shall carry out the liveliness check in order to guard against spoofing and such other fraudulent manipulations.

ix. To ensure security, robustness and end to end encryption, the REs shall carry out software and security audit and validation of the V-CIP application before rolling it out.

x. The audiovisual interaction shall be triggered from the domain of the RE itself, and not from third party service provider, if any. The V-CIP process shall be operated by officials specifically trained for this purpose. The activity log along with the credentials of the official performing the V-CIP shall be preserved.

xi. REs shall ensure that the video recording is stored in a safe and secure manner and bears the date and time stamp.

xii. REs are encouraged to take assistance of the latest available technology, including Artificial Intelligence (AI) and face matching technologies, to ensure the integrity of the process as well as the information furnished by the customer. However, the responsibility of customer identification shall rest with the RE.

xiii. RE shall ensure to redact or blackout the Aadhaar number in terms of Section 16.

xiv. BCs can facilitate the process only at the customer end and as already stated in para B(b) above, the official at the other end of V-CIP interaction should necessarily be a bank official. Banks shall maintain the details of the BC assisting the customer, where services of BCs are utilized. The ultimate responsibility for customer due diligence will be with the bank.

3. The Master Direction on KYC dated February 25, 2016, is hereby updated to reflect the above changes and shall come into force with immediate effect.

e-mandate in UPI transactions

RBI circular dated 10th January, 2020 allowing e-mandate recurring transactions to be processed on UPI (Unified Payments Interface) transactions in the same manner as for cards/ prepaid payment instruments (PPIs) with additional factor authentication.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11784&Mode=0

Processing of e-mandate in Unified Payments Interface (UPI) for recurring transactions

Please refer to our circular DPSS.CO.PD.No.447/02.14.003/2019-20 dated August 21, 2019 on “Processing of e-mandate on cards for recurring transactions” whereby processing of e-mandate on cards / Prepaid Payment Instruments (PPIs) was permitted for recurring transactions (merchant payments), with Additional Factor of Authentication (AFA) during e-mandate registration, modification and revocation, as also for the first transaction, and simple / automatic subsequent successive transactions, subject to certain conditions.

2. On a review of the developments since this facilitation, it has been decided to extend the above instructions to cover UPI transactions as well. All the instructions / conditions outlined in the circular under reference would apply, mutatis mutandis, while processing e-mandate in UPI. This is also in line with the measures proposed for furthering digital payments announced vide, the RBI Press Release dated November 8, 2019.

3. This directive is issued under Section 10 (2) read with Section 18 of Payment and Settlement Systems Act, 2007 (Act 51 of 2007).

4. This may be brought to the notice of all the members of UPI.

payment and settlement systems

RBI circular dated 10th January 2020 follows, for laying down framework for imposing monetary penalty on authorised payment system operators/ banks under the Payment and Settlement Systems Act, 2007.

Some of violations are compoundable offences so procedure for dealing with that also mentioned in this circular.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11785&Mode=0

coal and mining sector

PIB press release dated 11th January, 2020 regarding opening up of coal & mining sector in India.

The ordinance for amendment in the MMDR Act 1957 and the CMSP Act 2015 has been promulgated. The Union Cabinet had earlier approved the amendments intending to open up new areas of growth in the coal & mining sector.

The amendments in the Acts would enable the following:

1. Enhancing the  ease of doing business
2. Democratization of coal mining sector by opening it up to anyone willing to invest.
3. Offering of unexplored and partially explored coal blocks for mining through prospecting license-cum-mining Lease (PL- cum-ML).
4. Promoting Foreign Direct Investment in the coal mining  sector by removing the restriction and eligibility criteria for participation.
5. Allowing of successful bidder/allottee to utilise mined coal in any of the plant of its subsidiary or holding company
6. Attracting large investment in coal mining sector as restrictions of end use has been dropped.

The details are as given below:

1. Amendments in respect of Ministry of Coal

Amendment 1:            To provide for allocation of coal blocks for composite prospecting licence-cum-mining lease (PL-cum-ML)

Earlier, there was no provision for grant of composite prospecting licence-cum-mining lease (PL-cum-ML) in respect of coal/ lignite. A coal / lignite block could be either be allocated for PL or for ML. The Amendment has enabled the allocation of coal blocks for composite prospecting licence-cum-mining lease (PL-cum-ML) which will help in increasing of the inventory of coal/ lignite blocks for allocation. Coal blocks with different grades and in a wide geographical distribution will now be available for allocation.

The Sections involved were Section 4(2), 5(1), 8(4), 8(8), 8(9) and 31(2)(b) of the CMSP Act and Section 11A and 13(2) of the MMDR Act

Amendment 2:            Clarifying the power of Central Government to specify the purpose of allocation and that ‘any’ company can participate

There was lack of clarity earlier in the language of the provisions in the Acts leading to restrictive interpretation of the eligibility conditions in the auction. It has now been clarified that any company selected through auction/ allotment can carry on coal mining operation for own consumption, sale or for any other purposes, as may be specified by the Central Govt. allowing wider participation and competition in auction.

Thus, the companies which do not possess any prior coal mining experience in India but are financially strong and or have mining experience in other minerals or in other countries can now participate in auction of coal/lignite blocks. This would also allow the implementation of the 100% FDI through automatic route for sale of coal.

The Sections involved are 11A of the MMDR Act and Section 4(2) and 5(1) of the CMSP Act.

Amendment 3:            Flexibility in deciding the end use of Schedule II and III coal mines

Hitherto, the Schedule II and III coal mines could only be auctioned to companies that are engaged in specified end use. Now, the omission of sub-section (3) of Section 4 of CMSP Act has provided flexibility to the Central Govt. in deciding the end use of Schedule II and III coal mines under the CMSP Act. This would allow wider participation in auction of Schedule II and III coal mines, for a variety of purposes such as own consumption, sale or for any other purpose, as may be specified by the Central Govt.

Amendment 4:            Termination of the allocations made under the CMSP Act, their reallocation and compensation

The CMSP Act and the CMSP Rules were silent on subsequent allocation of coal mines upon termination of allocations made under the Act as well as rights and liabilities of the allottee, whose allocation has been terminated. With the amendment of Section 8 (insertion of sub section (13), (14) and (15) in CMSP Act), it is has become possible to provide for allocation of the coal mine to next successful bidder or allottee, subsequent to termination of its allocation along with the matters incidental to it. The Act now also provides for compensation to the allocattee whose allocation has been terminated.

Amendment 5:            Appointment of Designated Custodian in mines under production:

Earlier, there was no provision for appointment of designated custodian for management of the mines under production whose vesting/ allotment order has been cancelled. By amending the Section 18 of the CMSP Act, it is now possible for appointment of designated custodian for management of the mines, apart from Schedule II mines, which have come under production and whose vesting/ allotment order has been cancelled. It therefore addresses the issue of management and operation of the mines after their termination, which have come under production.

Amendment 6:            Dispensing with the requirement of previous approval in certain cases

With the amendment of the Section 5 and 17A of the MMDR Act, the repetitive and redundant provision requiring previous approval of Central government even in cases where the allocation or reservation of coal/ lignite block has been made by the Central Govt. itself has been done away with. This would significantly reduce the  time taken for operationalisation of coal/ lignite mines.

Amendment 7:            Entitlement to successful allocattee to utilise the coal mined in plants of Holding and Subsidiary company:

Earlier a successful allocattee was entitled to utilise the mined coal only in any of its plants. With the amendment of  Section 20(2)of the CMSP Act now the reference of Holding company and Subsidiary company has been added. This would make the successful bidder/allottee entitled to utilise mined coal in any of its plants or plants of its subsidiary or holding company.

Amendment 8:  Certain Consequential and clarificatory Amendments:

Certain consequential and clarificatory amendments were required in language of various provisions for smooth implementation of the CMSP Act. Section 9 and 20(1) of the CMSP Act have now been amended which has resulted in the clarification of language of Section 9 (related to priority of disbursal) Further, language of Section 20(1) has been clarified to avoid any arrangement between two coal linkage holders as the same is not subject matter of the CMSP Act.

2. Amendments in respect of Ministry of Mines

Amendment 1:            Insertion of new section 4B (after section 4A) to enable the Central Govt. to prescribe conditions for ensuring sustained production by the holder of mining leases, who have acquired rights/approvals/clearances etc. transferred from the previous lessee, as per the provisions under section 8B, which is incorporated in this amendment:

The pre-amended MMDR Act, provided a time period of two years for the new lessee for starting the mining operation, whereas the newly introduced section 8B of this Act, provides for deemed acquiring of valid rights /approvals /clearances by the new lessee. The objective of the amendment is to ensure the continuity of production of minerals. Hence, there is need to specify the conditions for production by the new lessee, who will avail benefits of section 8B. Further, the Central Government derives power to prescribe the conditions for the new lessees to commence production without prejudice to the time period of two years for starting the production prescribed in Section 4A.

Amendment 2:            Amendment of Section 8A by introducing a proviso to clarify the intent of Section 8A(4) of the MMDR Act:

The previous section 8A(4) of the MMDR Act provided for auction of leases on the expiry of the lease. There existed scope for ambiguity about initiating the advance action/process  by the State Government for notifying the expiring leases for auction. With the amendment it has  been clarified that State Government can take up advance steps for auction of blocks before the expiry of lease period. This would ensure that the production of the minerals from such blocks can be seamlessly continued.

Amendment 3:            Provisions to ensure that the successful bidder of mining leases expiring under Section 8A(5) & 8A(6), shall acquire all valid rights / approvals / clearances; for a period of two years and within which period he/she shall apply for fresh licence:

The working mining leases of Odisha are expiring during 2020. These leases produced about 58 Million Tonne of iron ore, 1.80 Million Tonne of chromite and 0.77 Million Tonne of manganese during the year 2018-19.  Statutory clearances required to start the mining operations for the new leases have to be granted expeditiously to enable the new lessees to continue the mining operations.

The new lessee has to obtain 20 approvals to start the mining operations, of which 9 are related to different Central Govt. Ministries and the remaining are from the State Government. In normal course, the minimum time period required to obtain these approvals vary from two to three years. This whole process would delay the commencement of mining operations by the new lessees. Any delay in commencing the mining operations by the new lessee would adversely  affect the mineral production in the country, which in turn would impact the important downstream industries like steel, cement etc.

With the insertion of new section 8B (after section 8A) of the MMDR Act, the successful bidders of the mining leases expiring under section 8A(5) & 8A(6) of the MMDR Act, deemed to have acquired all valid rights/ approvals/ clearances/ licenses and the like; for a period of two years and can start mining operation without loss of time. Seamless continuance of mining operations is in public interest as this will prevent disruption in supply of raw material (mineral) to the industries.

The above amendments (1,2&3) pertaining to Mines will promote ease of doing business and will benefit the holders of auctioned brown field mining leases on expiry of their lease period starting from March 2020 and then from March 2030.

Amendment 4:            Provisions to enable the holders of Non-Exclusive Reconnaissance permit of deep seated minerals and other minerals of the national interest to obtain composite licence (PL-cum-ML) or Mining Lease:

The previous legislative provisions did not allow the non-exclusive reconnaissance permit holders to apply for mining lease. The private participation in exploration was therefore negligible. In order to enhance exploration of deep seated minerals a facilitating environment has been envisaged to be provided with the insertion of new proviso after sub-section 2 of section 10C. This amendment would allow NERP holders of deep seated minerals or any minerals of the national interest to apply for composite licence (PL-cum-ML) or Mining Lease. This would hence augment the exploration of the deep seated minerals and minerals of national interest, some of which are strategically important for the country.

Amendment 5:            Empowers the Central Government to frame rules in respect of newly introduced sections:

The difficulty of the Central Govt. which had to derive power to make rules to implement the provision of the amended Act has now been removed with the insertion of new clauses in sub-section 2 of section 13. This would give the Central Government power to frame subordinate legislation to implement the intent of the Ordinance.

company secretary / secretarial audit

MCA has vide its notification dated 3rd January, 2020 allowed private companies with paid up share capital of Rs.10 crores and above to appoint a full time company secretary. Earlier the limit was Rs.5 crores.

It has also mandated that all companies (be it private or public unlisted) and having outstanding borrowings from banks or financial institutions to the tune of Rs.100 crores or more to have a secretarial audit report to be conducted pursuant to section 204 of the companies act, 2013. The cut off for the purpose of reckoning the above limit will be date of audited financials of the company.

The relevant notification is available on the MCA website.

non oil companies allowed to market transport fuels

PIB press release dated 23rd October, 2019

Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi has approved the Review of Guidelines for Granting Authorization to market Transportation Fuels. This marks a major reform of the guidelines for marketing of petrol and diesel.

The existing policy for granting authorization to market transportation fuels had not undergone any changes for the last 17 years since 2002. It has now been revised to bring it in line with the changing market dynamics and with a view to encourage investment from private players, including foreign players, in this sector. The new Policy will give a fillip to ‘Ease of Doing Business’, with transparent policy guidelines. It will boost direct and indirect employment in the sector. Setting up of more retail outlets (ROs) will result in better competition and better services for consumers

Salient features & Major Impact:

• Much lower entry barrier for private players - the entities seeking authorisation would need to have a minimum net worth of Rs.250 crore vis-à-vis the current requirement of Rs. 2000 crore prior investment.
• Non – Oil Companies can also invest in the retail sector. Requirement of prior investment in Oil and Gas Sector, mainly in exploration and production, refining, pipelines/terminals etc., has been done away with.
• The entities seeking market authorisation for petrol and diesel are allowed to apply for retail and bulk authorisation separately or both
• The companies have been given flexibility in setting up a Joint Venture or Subsidiary for market authorisation.
• In addition to conventional fuels, the authorized entities are required to install facilities for marketing at least one new generation alternate fuel, like CNG, LNG, biofuels, electric charging, etc. at their proposed retail outlets within 3 years of operationalization of the said outlet
• More private players, including Foreign players, are expected to invest in retail fuel marketing leading to better competition and better services for consumers
• The new entities will bring in latest technology for marketing of fuels and also encourage digital payments at the ROs.
• Entities will also encourage employment of women and ex-servicemen at the retail outlets.
• CCTV facilities will be set up at all retail outlets
• The authorised entities are required to set up minimum 5% of the total retail outlets in the notified remote areas within 5 years of grant of authorisation. A robust monitoring mechanism has been set up to monitor this obligation.
• An individual may be allowed to obtain dealership of more than one marketing company in case of open dealerships of PSU OMCs but at different sites.

independent directors - online test

MCA has vide amendment to the Companies (Appointment & Remuneration of Directors), Rules, 2014 mandated that all independent directors have to register themselves on an online link provided by the Indian Institute of Corporate Affairs (IICA). He has to apply online to register his name in a data bank provided by the IICA and that registration can be for 1 year, 5 years or lifetime. The independent director should ensure that his registration at the IICA portal is there as long as he is continuing to be an independent director. The registration at the portal should be done within 3 months of the commencement of this amendment, which is 22nd October, 2019. Therefore, the registration should be done on or before 21st January, 2020.

There is a renewal process also whereby the independent director concerned can renew his registration at this portal for a further period of 1 year, 5 years as the case may be within 30 days of the expiry of the first registration. Obviously, the renewal process is not applicable to those persons who have registered themselves for a lifetime basis at this portal.

Every independent director should also give a declaration of compliance of this rule alongwith their annual declaration of compliance as required u/s 149 of the companies act, 2013 ("the Act").

Every independent director should also pass an online proficiency self assessment test conducted by the IICA within a period of one year from the date from which his name is included in the data bank, or else his name will be removed from the data bank.

The companies should in their Directors' Report add a paragraph regarding opinion of the Board with regard to integrity, expertise and experience (including proficiency) of the independent directors appointed during the year. This provision has been made in an amendment to the Companies (Accounts) Rules, 2014. This amendment will come into force with effect from 1st December, 2019.
The explanation to this amendment clarifies that the proficiency is to be determined on the basis of the online proficiency test conducted by the IICA.

Passing marks for clearing this online proficiency test by the IICA is 60%. An individual can take any number of attempts in order to pass the test.

There are exceptions such as : those individuals who have served for not less than 10 years in any company or one or two companies put together either as a Director or as KMP in listed public companies and unlisted public companies having paid up capital of Rs.10 crores and above are not required to take the online proficiency test.

Individuals can also voluntarily apply to be included in the above said data bank and it includes persons not presently having a DIN also.

All this does not come free, so there shall be a reasonable fee to be charged from an individual whilst registering his name on the data bank, and also to the companies who refer to this data bank whilst selecting independent directors for their companies. There shall be no fees, however, for taking the online test.