Govt allows NBFCs to access Aadhaar database for e-KYC


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The Government of India has allowed non-banking financial companies (NBFC) to access the Aadhaar database for e-KYC authentication. NBFCs that are bound to rules under Section 11A of the Prevention of Money Laundering Act 2002 can apply to get clearance from multiple regulators and government agencies to access the Aadhaar database.

This could be a winning situation for mobile wallets and online payment startups. However, there are certain rules and regulations set by the Department of Revenue. A reporting entity other than the banking company itself needs to comply with standards of privacy and security under the Aadhar Act, 2016. It is mandatory to do so by notification and permit to carry out authentication of client’s Aadhar number using e-KYC.

Earlier this year, an Aadhaar ordinance was passed to allow banks to access Aadhaar data for customers who voluntarily agree to share the same. Banks can use the e-KYC facility to authenticate customers. However, NBFCs were not included in the ordinance. Now with this note, all the non-banking firms can access the Aadhaar database to authenticate customers and provide them with seamless onboarding.

As per the process to get clearance to access the Aadhaar database, all the applications for use of Aadhaar authentication services has to be first filed before the concerning regulators for getting clearance. Payment and lending firms have to get approval from Reserve Bank of India (RBI) whereas broking firms and trading companies have to get approval from the Security Exchange Board of India (SEBI). After getting the clearances, the firms have to apply to UIDAI for privacy and security examination.

UIDAI has been asked to prepare compliances and standards to be fulfilled by the reporting entities. UIDAI has the responsibility to maintain the privacy and security of the Aadhaar database. If the reporting entities are found to be not fulfilling the compliances under clause (a) of section 11A, the Government may withdraw the notification and clearance of such firms will be canceled.

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