2. Objectives of the study
To understand in detail the meaning of KYC.
To take a look at the KYC forms maintained by different banks.
To analyse the core elements of KYC and when it is required.
To show the Dos and Don’ts for bank officers.
To highlight the advantages of KYC norms.
To discuss about Money Laundering.
3. What is KYC...??
KYC stands for ‘Know Your Customer’
In the year 2002, RBI instructed that all the banks must obtain information about
their customers’ identity and address. From that time onwards, it has been carried
out by a process called KYC.
It is a process by which banks obtain information about the identity and address of
the customers and helps to ensure that banks’ services are not misused
Banks are also required to periodically update their customers’ KYC details
It enables banks to know / understand their customers and their financial dealings
so as to be able to serve them better.
Know your customer (KYC) policy is an important step developed globally to
prevent:
Identity theft
Financial fraud
Money laundering and
Terrorist financing
5. Defining a Customer
Individual
Company/ Business Entity
Professional Intermediaries such as Stock
Broker
CharteredAccountants, Solicitors etc
Any person or entity connected with a
financial transaction
Asks ’KYC’
Customer
6. Core elements of KYC
CustomerAcceptance Policy
Customer Identification Procedure- Customer Profile
Monitoring of a customer’s transactions against their expected behavior and
recorded profile as well as that of the customer’s peers
Risk Management
Determination of the customer’s risk in terms of propensity to commit
money laundering, terrorist finance or identity theft
Reporting of cash and suspicious transactions
7. When KYC is required…??
• Opening an account in a bank
• Applying for a Credit card or Loan
• Opening a subsequent account
• Opening a Locker facility
• While investing in a Mutual fund
• Financial institutes may ask for a mandatory KYC process in other instances too
• When there are not enough documents with the Bank in existing account
• When there are changes in Signatories, Beneficial owners, etc
• When the bank feels it necessary to obtain additional information from existing
customers based on conduct of the account
8. Bank officers- do’s & don’ts
▶ Exercise constant vigilance right from opening of new accounts
▶ Know your customer & know your colleagues
▶ Separate legitimate business & illegitimate /irregular/ suspicious business
▶ Always think of bank’s reputation/clean image
▶ Develop risk aware culture- – a good customer today may not be good
tomorrow
▶ Do not exercise willful blindness
▶ Involve in public awareness of KYC issues
9. KYC does not mean
▶ Denial of Service to the Common Person
▶ Intrusive Behavior
▶ Use of information for cross selling
▶ Harassment of customers- threatening to close down the accounts
arbitrarily
10. Advantages of KYC norms
Sound KYC procedures have particular relevance to the safety and
soundness of banks, in that:
They help to protect banks’ reputation and the integrity of banking
systems by reducing the likelihood of banks becoming a vehicle for or a
victim of financial crime and suffering consequential reputational damage;
They provide an essential part of sound risk management system (basis
for identifying, limiting and controlling risk exposures in assets &
liabilities)
11. Suspicious Transactions
▶ Providing misleading information / information not easily verifiable while
opening an Account
▶ Large cash withdrawals from: a dormant or inactive account or account
with unexpected large credit from abroad
▶ Sudden increase in cash deposits of an individual with no justification
▶ Employees leading lavish lifestyles that do not match their known income
sources
12. Stages of the Money Laundering
1. Placement
Induction of illegal money into the
financial system
2. Layering
Multiple transactions to confuse the
audit trail and distance the original
source of funds (e.g. successive
transactions, international transfers).
3. Integration
than integrating funds back into the real
economy as “clean and
Respectable money
13. Money Laundering
Risks to banks?
(I) Reputational risk
(ii) Legal risk
(iii) Operational risk
All risks are inter-related and together have the potential of causing
serious threat to the survival of the bank
14. Risk Category
o High Risk Customers (CDD – Every Transaction)
i) non-resident customers
ii) private banking customers
iii) legal persons
o Medium risk customers ( CDD – Only on High amount)
i) documentary businesses
o Low risk customers ( CDD – Yearly )
15. Prevention of Money Laundering
Observing Rules for
Bankers
Customer
due Diligence
Identifying
Irregular / Suspicious
Transactions
Compliance with
Laws
Money Laundering
Prevention
16. Conclusion
▶ The objectives of KYC guidelines is to prevent banks from being used,
intentionally or unintentionally, by criminal elements for money laundering
activities.
▶ The main objective of this policy is to prevent money laundering, identity
theft, terrorist financing, and financial frauds.
▶ Related procedures of KYC also enable banks to better understand their
customers and their financial dealings. This helps them manage their risks
prudently.
▶ KYC policy is an indispensable part of banking operation, whether it’s
about account opening or advancement of loans. Because it helps to
ensure that the services are not misused.
