Finance Ministry approves Aadhaar-Based Verification of Clients for 15 Securities Firms

The Ministry of Finance has authorized 15 securities firms to do Aadhaar-based customer verification, according to a Revenue Department’s issued notification.

SBICAP Securities, IIFL Securities, and Angel One are among the firms that have received approval. The notification, issued under the Prevention of Money Laundering Act, authorizes these companies to use Aadhaar for the Know Your Customer (KYC) process.

According to sources, other organizations that have received approval include JM Financial Services, Arihant Capital Market, SMC Global Securities, Aditya Birla Money, R.K. Stock Holding, Monarch Networth Capital, RKSV Securities, Comfort Securities, and OPG Securities Pvt Ltd.

In 2023, the Ministry of Electronics and IT (MeitY) suggested expanding Aadhaar authentication to encompass a greater range of private businesses for a variety of services, with the goal of improving digital identity use beyond government departments.

This action is part of broader measures aimed at strengthening the Prevention of Money Laundering Act (PMLA) and closing potential loopholes ahead of an impending examination by the Financial Action Task Force (FATF), the worldwide watchdog on money laundering and terrorist funding, according to reports.

The proposal complied with Section 11A of the PMLA, which allows reporting entities to verify their identities. E-KYC using OTP-based Aadhaar authentication enables organizations to provide restricted services, subject to an annual renewal requirement and a term loan maximum of Rs.60,000.

Previously, in 2019, the Aadhaar Act was revised to limit authentication for KYC purposes to the banking and telecom sectors, following a 2018 Supreme Court order that declared Section 57 of the Aadhaar Act “unconstitutional”. This provision permitted commercial companies to use Aadhaar data, which was later challenged in court.

It was under this provision that private companies like Paytm and Airtel Payments Bank sought Aadhaar details from customers prior to the landmark judgement. Even the subsequent 2019 amendment was challenged in the Supreme Court.

According to the IT Ministry’s proposed amendments to the Aadhaar Authentication for Good Governance (Social Welfare, Innovation, Knowledge) Rules, 2020, private entities and state governments would be permitted to conduct Aadhaar-based authentication for the purpose of promoting residents’ “ease of living” and improving their access to services, among other things.