Nepal Rastra Bank (NRB) plans to establish a new mechanism to facilitate the exchange of customer identity information among banks and financial institutions. Modeled after the Credit Information Center, this new structure will manage and centralize customer identity data across the financial sector.
In its latest monetary policy, NRB announced the development of a Centralized Customer Identification System (KYC) aimed at streamlining customer identification processes. Last year, NRB conducted a study on implementing this system. Spokesperson Ramu Poudel indicated that discussions are underway regarding the structure, operational model, and investment needed for the organization. “We are currently finalizing the structure, investment, and operational model for the central KYC system management body,” Poudel said. “Implementation will proceed once these details are confirmed.”
Regulatory Support for Centralized KYC
The Prevention of Money Laundering Regulation-2081 recently granted financial institutions permission to use electronic records maintained by the government, such as citizenship certificates and national identity cards, for customer identification. This allows banks and financial institutions to access these records for KYC purposes, though Poudel noted that such documents alone are insufficient for comprehensive customer identification. “National identity card or citizenship details alone do not provide the full range of information necessary for thorough customer identification,” he said, underscoring the need for a dedicated structure.
Streamlined Process for Banks and Customers
Currently, bank customers must submit separate KYC information for each institution where they hold accounts. The planned centralized customer identification system will simplify this process by allowing banks to access updated customer information through a central database. This will enable efficient data exchange among financial institutions and reduce the need for customers to provide KYC details repeatedly.
Last year’s monetary policy identified the need for a centralized customer identification system to facilitate customer data exchange among banks, financial institutions, and payment-related organizations. It also emphasized the importance of linking the system with government-issued national identity cards. Recently, the government mandated that national identity cards will be required for accessing public services starting next July, as announced in the Nepal Gazette.
International Examples and Sector Adoption
India has successfully implemented a Central Customer Identification System since 2016, managed by an organization funded by the Indian government, which registers customer identities and provides this information to financial institutions.
Nepal has already adopted an electronic centralized KYC system in the securities market. Customers can update their information in the KYC system managed by CDS & Clearing Limited, which enables affiliated companies, securities dealers, and merchant banks to access updated details without requiring customers to submit information again and again. However, KYC adoption remains low in Nepal’s securities sector.
Legal Requirements and Customer Challenges
According to the Anti-Money Laundering Act, financial institutions must keep customer details updated. Despite this requirement, many customers find the process of updating their information cumbersome and time-consuming. By establishing a centralized KYC system, NRB aims to ease this burden while ensuring compliance with regulatory standards for financial transparency and security.
