We must view the current uproar in the ₹53.4 trillion mutual fund industry over a Know Your Customer (KYC) update in the larger context of the issue. This capital market event, where some investors are facing difficulties in accessing their accounts, is a consequence and not a cause. The root of the issue stems from the central government requirement that needs proof of identity and address to prevent money laundering in the financial sector. However, the modalities of the implementation of this law have been left to individual regulators leading to harassment of citizens and high costs for the financial sector. A centralised solution, run by the central government in the form of a centralised KYC (CKYC), with the aim of inter-usability of the KYC records across the financial sector to reduce the burden of validation every time the customer creates a new relationship with a financial entity, has been a failure. The government has created this problem; the government must solve it.
