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History: KYC (Know Your Customer) Norms
History: KYC (Know Your Customer) Norms
1. HISTORY
Worldwide Impact:
Taking a leaf out of the US book, the Reserve Bank of India too
directed all banks to implement KYC guidelines for all new accounts in
the 2nd half of 2002.
Background:
The Reserve Bank of India (RBI) had issued a directive that banks
should draw up a time bound action plan for obtaining customer
identification documents under new KYC norms in respect of all the old
accounts and complete the entire exercise by 31.12.2004. Accordingly,
the Zones/Branches had been advised to comply with the RBI directive as
per the action plan. All the Zones had confirmed compliance of the KYC
norms for all the accounts based on branch confirmations and the final
certificate was furnished by the Bank to the RBI in April, 2005.
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RBI Follow-up:
It means that the Branches are not complying with the KYC
guidelines extremely careful and the requirement of KYC
compliance is not being taken seriously by some branches.
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Once the accounts are identified for KYC non-compliance and the
nature of deficiency is established, Branches shall address a suitable
communication to each such identified account holder requesting for
submission of the necessary documents for compliance of the KYC
requirements.
The customers may be given seven days time for complying with
the Bank’s requirements. In case the KYC norms are not complied within
the period stipulated therein, the account/s shall be frozen.
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After the expiry of the notice period, the Branches shall submit
their reports to the Zonal Offices within seven days. The Zonal Offices
will consolidate the reports of all the Branches in their zones and submit
their report to RBI within seven days in the same format.
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Accounts which remain non - compliant despite all the above process
and even after expiry of the deadline shall be frozen.
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Before giving any finance at branch level, making sure that the
person has no links with notified terrorist entities and reporting any such
'suspect;' accounts to the government.
Most important, banks must keep an eye out for all banking
transactions and identify suspicious ones. Such transactions will be
immediately reported to the bank's head office and authorities and norms
shall also be laid down for freezing of such accounts.
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The RBI had also directed all banks to make a policy for
implementing 'Know Your Customer' and anti-money laundering
measures and remain fully compliant with given guidelines before
December 31, 2005.
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2. INTRODUCTION:
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3. GUIDELINE:
3.1 General:
I) Banks should keep in mind that the information collected from the
customer for the purpose of opening of account is to be treated as
confidential and details thereof are not to make known for cross selling or
any other like purposes. Banks should, therefore, ensure that information
sought from the customer is relevant to the perceived risk, is not
intrusive, and is in conformity with the guidelines issued in this regard.
Any other information from the customer should be sought separately
with his/her consent and after opening the account.
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Banks should frame their KYC policies incorporating the following four
key elements:
Customer Acceptance Policy;
Customer Identification Procedures;
Monitoring of Transactions; and
Risk Management.
3.3 Customer Acceptance Policy (CAP):
(iv) Not to open an account or close an existing account where the bank is
unable to apply appropriate customer due diligence measures i.e. bank is
unable to verify the identity and /or obtain documents required as per the
risk categorisation due to non cooperation of the customer or non
reliability of the data/information furnished to the bank. It is,
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b) Banks should prepare a profile for each new customer based on risk
categorisation. The customer profile may contain information relating to
customer’s identity, social/financial status, nature of business activity,
information about his clients’ business and their location etc.
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For customers that are natural persons, the banks should obtain
sufficient identification data to verify the identity of the customer, his
address/location and also his recent photograph.
For customers that are legal persons or entities, the bank should
(i) Verify the legal status of the legal person/entity through proper and
relevant documents.
(ii) Verify that any person supporting to act on behalf of the legal
person/entity is so authorized and identify and verify the identity of that
person.
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When the bank has knowledge or reason to believe that the client
account opened by a professional intermediary is on behalf of a single
client, that client must be identified. Banks may hold 'pooled' accounts
managed by professional intermediaries on behalf of entities like mutual
funds, pension funds or other types of funds. Where funds held by the
intermediaries there are 'sub-accounts', each of them attributable to a
beneficial owner, all the beneficial owners must be identified. Where
such funds are co-mingled at the bank, the bank should still look through
to the beneficial owners. Where the banks rely on the 'customer due
diligence' (CDD) done by an intermediary, they should satisfy themselves
that the intermediary is regulated and supervised and has adequate
systems in place to comply with the KYC requirements. It should be
understood that the ultimate responsibility for knowing the customer lies
with the bank.
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and the total credit in all the accounts taken together is not expected to
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Every bank should set key indicators for such accounts, taking note
of the background of the customer, such as the country of origin, sources
of funds, the type of transactions involved and other risk factors. Banks
should put in place a system of periodical review of risk categorization of
accounts and the need for applying enhanced due diligence measures.
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There are five types of risks that an effective KYC policy can help to
mitigate:
• Reputational
• Operational
• Legal
• Financial
• Concentration.
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with their boards, devise procedures for creating risk profiles of their
existing and new customers and apply various anti money laundering
measures keeping in view the risks involved in a transaction, account or
banking/business relationship.
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Earlier for each transaction we need not to provide pin code for
each transaction. But now days it has made compulsory to provide
pin code for each withdrawals.
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5. CORRESPONDENT BANKING:
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Banks should ensure that their respondent banks have anti money
laundering policies and procedures in place and apply enhanced 'due
diligence' procedures for transactions carried out through the
correspondent accounts.
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6. WIRE TRANSFER:
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iii) When a credit or debit card is used to effect money transfer, necessary
information as (i) above should be included in the message.
6.3 Exemptions:
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a) All cash transactions of the value of more than Rupees Ten Lakh or its
equivalent in foreign currency;
The following transactions have taken place in a NBFC during the month
of April,
2008:
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the calendar month exceeds `.10 Lakh. However, the NBFC should
report only the debit transaction taken place on 02/04 & 08/04/2008. The
debit transaction dated 07/04/2008 should not be separately reported by
ii) All the credit transactions in the above example would not be treated
as integrally connected, as the sum total of the credit transactions during
the month does not exceed `.10 Lakh and hence credit transaction dated
should report only the debit transaction taken place on 02/04 &
08/04/2008. The debit transaction dated 07/04/2008 should not be
f) All the credit transactions in the above example would not be treated
as integrally connected, as the sum total of the credit transactions during
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the month does not exceed `.10 Lakh and hence credit transaction dated
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Director, FIU-IND,
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While detailed instructions for filing all types of reports are given
in the instructions part of the related formats, banks should scrupulously
adhere to the following:
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iv) CTR should contain only the transactions carried out by the bank on
behalf of their clients/customers excluding transactions between the
internal accounts of the bank.
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iii) Banks should make STRs if they have reasonable ground to believe
that the transaction involve proceeds of crime generally irrespective of
the amount of transaction and/or the threshold limit envisaged for
predicate offences in part B of Schedule of PMLA, 2002 .
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Thus, with effect from 1st January 2011, any investor (all
applicants in a folio) investing into mutual funds through the Investment
Services Account would be required to be KYC compliant with
CVL(CDSL Ventures Ltd) without which the transactions may be liable
to be rejected by the respective mutual fund houses.
“We are losing out many investors due to delay in completing the
KYC norms. Usually, this is the time, retail investors start investing into
equity linked saving scheme (ELSS) funds for gaining tax advantages,”
said a leading distributor on condition of anonymity. Waqar Naqvi, CEO
of Taurus MF said, “Due to compulsory KYC, the application volumes
have gone up in the last few days”. He however added that the sudden
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rush might have led to some technical glitches, which could be ironed out
over a period of time.
2. Where and how does one get to be KYC Compliant? Does the
investor have to repeat the KYC process with every Mutual Fund?
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Answer-A KYC Application Form has been designed for Individual and
Non-Individual Investors separately. These forms are available on the
website of mutual funds, AMFI and Central Depository Services (India)
Limited (CDSL). If the investor is not in a position to visit personally, the
KYC Application Form along with the necessary documents (including
originals if the copies are not attested) can be sent through the distributor
or representative.
Joint Holders: Joint holders (including first, second and third if any, are
required) to be individually KYC compliant before they can invest with
any Mutual Fund and copies of each holder's KYC Acknowledgement
must be attached to the investment application form with any Mutual
Fund.
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For transmission (in case of death of the unite holder): If the deceased
is the sole applicant, the claimant should submit his/her KYC
Acknowledgement in the request along with the other relevant documents
to effect the transmission in his/her favors.
6. Once an account is opened with a Mutual Fund by the 1st, 2nd and
3rd holder after completing the necessary formalities and the
investor's return to make a fresh investment, do they need to furnish
the necessary documents again?
Answer-In the event of any KYC Application Form being found deficient
for lack of information/insufficiency of mandatory documentation, further
investments will not be permitted.
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10. Why does investor need to give his/her income details? How can
they be sure that it will not be misused?
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Customer Education:
Implementation of KYC procedures requires banks to demand
certain information from customers which may be of personal nature or
which have never been called for. This can sometimes lead to a lot of
questioning by the customer as to the motive and purpose of collecting
such information. There is, therefore, a need for banks to prepare specific
literature/ pamphlets etc. so as to educate the customer of the objectives
of the KYC programme. The front desk staff needs to be specially trained
to handle such situations while dealing with customers.
Employee's Training:
Banks must have an ongoing employee training programme so that
the members of the staff are adequately trained in KYC procedures.
Training requirements should have different focuses for frontline staff,
compliance staff and staff dealing with new customers. It is crucial that
all those concerned fully understand the rationale behind the KYC
policies and implement them consistently.
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Hiring of Employees:
It may be appreciated that KYC norms/AML standards/CFT
measures have been prescribed to ensure that criminals are not allowed to
misuse the banking channels. It would, therefore, be necessary that
adequate screening mechanism is put in place by banks as an integral part
of their recruitment/hiring process of personnel.
Purpose
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Mumbai, July 17
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Compliance Risk:
"But it is for the general good. There is a law and there is need to
follow a certain process. World over compliance risk is the biggest risk,"
he said.
Bank officials point out that all application forms are divided into
two parts mandatory information and optional information.
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No prize for the right answer. But penalty is huge if you don't
`know your customer', especially in the world of finance.
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14.1 3C KYC:
The KYC Task Checker can be used to log extra information about the
client or ensure that compliance staff has taken the correct steps during
the clients relationship with the company. The Task Checker is fully
customisable by the Compliance Officer so that any task can be
monitored in line with business requirements.
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Contact history with regulatory bodies is also stored with a full audit
trail. Regulatory relationships are easily accessible. Store regulatory
public notices, new sanctions and warnings
3C KYC - offers your compliance team a 360 view of your client details,
including notes, correspondence and KYC activities. STR’s, Complaints
and Court Orders can also be logged against the client details. The client
note area allows you to store and share information about your client.
3C KYC provides you with a central data hub to import your watch list
information. The diary area is customisable enabling you to store and
monitor Compliance related activities.
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3C KYC - has a built in Mail Merge system for use with POI & POA
requests the merge is automatically filed against your client data.
14.10 Scanning:
Scan all your KYC documents, watch list findings and regulatory
documentation straight into your client and regulatory data areas.
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Today, we are in the amazing position of not knowing who the real
beneficiary owners in India are for the following corporates operating
freely in India, happily hiding behind their tax havens and client/attorney
privileges, changing despondent ownerships like other people change
cloths. They all know who or what the president of India is, can sue or
take action against the government if required, but themselves hide
behind their opaque curtains.
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These include:
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Appendix-I
CASE STUDIES
1.
As per the guidelines on KYC, banks are required to carry out due
diligence of customers before opening any deposit account. This is a step
taken by the apex bank to combat money laundering and financing of
terrorism in the country.
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2. HDFC BANK:
`25 Lakh; ING Vysya Bank - ` 10 Lakh and IDBI Ltd ` 5 Lakh.
This is the second time HDFC Bank has been fined for violation of
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Appendix-II
Features Documents
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Appendix-III
ABRIVATIONS
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Appendix-IV
Questionnaires
1. Sir, How much KYC (Know Your Customer) Norms are important?
Bank Manager- KYC for banks is as an important factor just like
breathing is important to live a life.
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Appendix-V
BANK CERTICICATE
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20. CONCLUSION:
Positive part:
KYC (know Your Customer) do provide protection against Anti-
Money Laundering (AML) Measures/Combating of Financing of
Terrorism (CFT).
It helps banks and financial institution by providing security measure to
prevent future defaults.
Negative part:
In place of KYC it has become H2HYC (How to Harres Your
Customer).
Even with all these the people who want to do all these things they
get away with everything, but only innocent people getting harassed by
the banks with these policy. For simple customers all these ruling are
there. But for the big fish all these rules are getting by passed that is the
reason even after putting all these condition they are able to manage the
show. This is the reason for all malpractice going on all over the world.
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21. BIBLIOGRAPHY:
WEBSITE
http://www.rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx
http://fiuindia.gov.in/identity-knowcustomer.htm
http://www.thehindubusinessline.in/2006/07/18/stories/20060718006906
00.htm
http://www.thehindubusinessline.in/2006/07/18/stories/20060718006906
00.htm
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