KYC : Know Your Customer

PURPOSE : To Identify the Clients

WHERE IT IS USED : Bank and other financial institutions.

WHY IT IS USED : - Monitor the financial transactions - Risk Management - Customer Identification

Every bank should develop a Customer identification policy laying down explicit criteria for acceptance of customer. No account is opened in anonymous or factious / benami name parameters are clearly defined in terms of nature of business Documentation requirement and other information to collect in respect

of different customer depending of risk. Circumstances in which customer is permitted to act on behalf of another person should be clearly defined.

Banks should prepare profile for each new customer based on risk categorization profile may contain information relating to customer identity, social/financial status.

Risk categorization

EX :- salaried employees and people belonging to lower economic strata

Non resident customers

High net worth individuals

Trusts, charities , NGOS and organization receiving donation

Companies having close family , shareholding or beneficial relationship

Firms with sleeping partners

Politically exposed person of foreign origins

Non face to face customers

Those with dubious reputation as per public info available

Extend of monitoring will depend on risk sensitivity of account.

Risk involved in cash intensive business

High risk associated accounts or suspicious accounts

Updation of risk category

• BOD must ensure appropriate procedure which cover proper management oversight, system and controls, segregation of duties and other related matters

• Banks internal audit and compliance.

• National Money laundering / financing of terror assessment committee

Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source, and/or destination of money, and is a main operation of the underground economy.

Another Definition

Money laundering is a process whereby the origin of funds generated by illegal means is concealed (drug trafficking, gun smuggling, corruption, etc.)

 

Deposit structuring Connected AccountsPayable Through AccountsInvestment Banking and the Securities

SectorInsurance and Personal Investment ProductsCompanies Trading and Business ActivityCorrespondent Banking Lawyers, Accountants & other

IntermediariesMisuse of Non-Profit Organizations.

• Ongoing monitoring is an essential element of effective KYC procedures

• Bank should pay special attention to all complex transactions and unusual pattern

• Large amount of inconsistent cash should attract the attention of the bank

• Key indicators should be set by every bank for very high account turnover inconsistent with the size of balance

• Categorization of customer should be carried out periodically not less than 6 months

• High risk associated accounts should be taken into account by banks to identify and report in Suspicious Transaction Report

• All accounts should be subject to minimum KYC standard to establish the identity of the natural/ legal person and the beneficiary person.

• When bank is not able to apply KYC measures due to no- furnishing of information by the customer, the account should be terminated after issuing the show cause notice to the customer

• Special attention to money laundering threats from new or developing technologies.

• Banks engaged in issuing of electronic cards should fully comply with KYC/AML/CFT guidelines

• Banks should ensure that appropriate KYC procedures are duly applied before issuing the cards to the customers.

• Wire transfer is a transaction carried out on behalf of an originator person through the bank by electronic means to make amount available to a beneficiary person to the bank

• Cross border transfer• Domestic wire transfer• Cross border transaction must contain name and address of the

originator• Record should be maintained for cross border transactions above

Rs 5 lakhs as per PML Rules• Domestic transfer of Rs fifty thousand and above must include all

the information of the originator• Necessary information should be included in the making of

payment through debit card or credit card• Inter bank transfer and settlement should be excluded from above.