Govt widens Aadhaar ambit: 22 pvt firms can use it to verify customers

Section 11A of the Prevention of Money Laundering Act provides for verification of identity by reporting entities. The amendment is a part of a series of changes being undertaken in the money laundering law to plug loopholes ahead of India’s proposed assessment later this year under the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog.

A fintech executive said that while banks are allowed to carry out Aadhaar authentication, non-banking regulated entities that are considered as reporting entities under the PMLA can be allowed to conduct such authentications if their approval is accepted by the Unique Identification Authority of India (UIDAI), the Aadhaar agency, depending on their data security practices.

E-KYC (know your customer) carried out through OTP-based Aadhaar authentication allows entities to offer a limited set of services to their users. Such a KYC has to be renewed every year  and the aggregate amount of term loans sanctioned shall not exceed Rs 60,000 in a year.

In 2019, the government had amended the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, under which it had allowed only banking and telecom companies to carry out such authentications for KYC requirements.

The amendment was necessitated after the Supreme Court, in 2018, had struck down Section 57 of the Aadhaar Act, which allowed the use of Aadhaar data by any “body corporate or person” – essentially private companies – to establish the identity of an individual for being “unconstitutional”. 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. The case is yet to come to a conclusion.

According to amendments proposed to the Aadhaar Authentication for Good Governance (Social Welfare, Innovation, Knowledge) Rules, 2020 by the IT Ministry in April, private entities and state governments would be allowed to conduct Aadhaar-based authentication for promoting “ease of living” of residents and enabling better access to services for them, among other things.