By

Lipsa Raval
Faculty Member, N. I. C. M.
Types of risk in bank
Credit risk
Market risk
Interest Rate risk
Liquidity risk
Investment risk
Operational risk
Technology risk
Legal risk
Reputation risk


Kidnapping
Drug Trafficking
Bribery/corruption
Tax Evasion
Serious crime or All crimes
White collar crimes (including insides trading and
securities offences)/ Pink collar crimes
Robbery and Fraud
Gambling
Organized crime
Extortion
Prostitution
Smuggling (arms, people, goods)
Placement
of criminal proceeds into the financial system
Layering
of transactions to confuse the audit trail and distance
the original source of funds (e.g. successive
transactions, international transfers, early termination
products, tax haven companies, genuine businesses).
Integration
of funds back into the real economy as clean and
respectable money

Offence of Money Laundering (section 3)
Whoever
(a) acquires, owns, possesses or transfers any
proceeds of crime; or
(b) knowingly enters into any transaction
which is related to proceeds of crime either
directly or indirectly; or
(c ) conceals or aids in the concealment of the
proceeds of crime
Commits the offence of money laundering

Indian Penal Codes
Narcotic Drugs and Psychotropic Substances
Act, 1985
Arms Act 1959
Wild Life (Protection) Act, 1972
Immoral Traffic (prevention) Act, 1956
Prevention of Corruption Act, 1988
What are the risks to banks?
(i) Reputational risk
(ii) Legal risk
(iii) Operational risk
(iv) Concentration risk
All risks are inter-related and together have
the potential of causing serious threat to the
survival of the bank
These guidelines are issued under Section 35
(A) of the Banking Regulation Act, 1949 and
any contravention of the same will attract
penalties under the relevant provisions of the
Act. Banks are advised to bring the
guidelines to the notice of their branches and
controlling offices.

Definition of Customer
A customer or entity that maintains an account
and/or has a business relationship with the bank;
One on whose behalf the account is maintained (i.e.
the beneficial owner)
Beneficiaries of transactions conducted by
professional intermediaries such as stock brokers,
chartered accountants, solicitors, etc. as permitted
under the law, and
Any person or entity connected with a financial
transaction which can pose significant reputational
or other risks to the bank, say, a wire transfer or
issue of high value demand draft as a single
transaction.




Know your customer standards
Customer Acceptance Policy
Customer Identification Procedure
Monitoring of Transactions
Risk Management
Customer education
Introducing of new technologies - credit
cards/debit cards/smart cards/gift cards
KYC for existing accounts
Appointment of principal officer

Towards Name proof Photo Identification Towards address
proof
Passport where the address differs Telephone Bill
Voters Identity Card Bank account statement
PAN Card Income/Wealth tax assessment
order
Driving Licence Credit Card Statement
Govt. /Defence ID card * Electricity Bill
ID cards of reputed employers * Ration Card
Letter from a recognised public
authority or public servant
verifying the identity and residence
of the customer*
Letter from employer*
*Subject to the satisfaction of the officer authorising the opening of the
account
Note: Original should be produced for verification and copy, duly
attested by the verifying official, shall be kept along with the account
opening form.
For low risk customers Once in three years
For medium risk customers Every year
For high risk customers Every year
On-going monitoring of transactions for
identifying suspicious and high value cash
transactions (Rs. 10 lakhs)
Special attention to all complex, unusually
large transactions and all unusual patterns
which have no apparent economic or visible
lawful purpose.
Prescription of threshold limits
Review of risk classification
Reporting to law enforcement authority

High Risk Customers
Medium risk customers
Low risk customers
Proper systems and procedures to be in place
to enable the management to review effective
implementation of KYC norms
Banks internal/concurrent auditors to verify
application of KYC procedures and to
evaluate the effectiveness of banks KYC
policies and procedures
A quarterly compliance report to be placed
before the audit committee.
Accounts of Trusts
Accounts of Companies and Firms
Accounts opened by professional
intermediaries
Accounts of Politically Exposed Persons
resident outside India
Non-Face-To-Face Transaction
Correspondent Banking


Revised guidelines to apply to all the existing
customers on the basis of materiality and risk
Transactions in existing accounts to be
continuously monitored for review of CDD
measures
All existing accounts of companies, firms,
trusts, charities, religious organizations and
other institutions to be subjected to
minimum KYC
CTR- Cash Transaction Report
- For all cash transaction above Rs. 10 lakhs
in a month
STR- Suspicious Transaction Report
Reports should be prepaid in E- Form
Should be sent to RBI on each working last
Friday
Financial intermediaries should prepare and
maintain documentation on their customer
relationships and transactions to meet the
requirements of relevant laws and regulations, to
enable any transaction effected through them to
be reconstructed. In the case of wire transfer
transactions, the records of electronic payments
and messages must be treated in the same way as
other records in support of entries in the account.
All financial transactions records should be
retained for at least five years after the transaction
has taken place and should be available for perusal
and scrutiny of audit functionaries as well as
regulators as and when required.

Relaxed KYC procedure refers to acceptance of an
introduction in full KYC procedure subject to
certain conditions prescribed.
This relaxation is applicable for Low Income Group
customers, individuals falling under the 'No frill
category, persons affected by natural calamities
like floods, cyclone, tsunami, etc.
Low Income group customers are those who keep
balances not exceeding Rs.50000/- in all their
accounts (FDR/CA/SB) taken together and the total
credit summation in all the accounts taken together
is not expected to exceed Rupees One Lakh
(Rs.100000/-) in a year.

For these customers, branches are permitted to open
accounts subject to the following conditions:
I. An introduction (in lieu of the KYC documents) from another
account holder who has been subjected to full KYC procedure
should be given.
II. The introducer's account with the Bank should be at least six
month's old and should show satisfactory transactions.
III. The photograph of the customer who proposes to open the
account and his address need to be certified by the
introducer.
When, at any point of time, the total balance in all his/her
accounts (FDR/SB/CA) with the Bank taken together exceeds
Rupees Fifty thousands (Rs.50000/-) or total credit
summation in all the accounts exceeds Rupees one lakh
(Rs.100000/-) in a year, no further transactions will be
permitted until the full KYC procedure is completed.

Employee Training
Banks should take steps to provide proper
training to its employees on the statutory/
regulatory requirements and the internal
policy & procedures so that the risks are
well understood and managed
Employees should also be educated on the
need for proper handling of customer queries

Customer Education
Distribution of pamphlets etc. may be
considered