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By Lipsa Raval Faculty Member, N. I. C. M.

By Lipsa Raval Faculty Member, N. I. C. M.

Types of risk in bank  Credit risk  Market risk  Interest Rate risk 

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

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
  • 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
  • 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)

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
  • 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

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
  • 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

Voter‟s 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 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)
  • 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
  • High Risk Customers

  • Medium risk customers

  • Low risk customers

 Proper systems and procedures to be in place to enable the management to review effective
  • 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 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
  • 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
  • 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 maintain documentation should prepare and on their customer relationships and transactions to meet

Financial

intermediaries

maintain documentation

should

prepare

and

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 certain conditions
  • Relaxed KYC procedure refers to acceptance of an introduction in full KYC procedure certain conditions prescribed.

subject to

  • 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

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

Thank You