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Kyc norms in banks

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GROUP 19
Heten Koli   -11020241111
Arjun Tamhane-11020241005
Juned Parkar -11020241012
   KYC (Know Your Customer) is a framework for banks
    which enables them to know / understand the
    customers and their financial dealings to be able to
    serve them better.

   Banking operations are susceptible to the risks of
    money laundering and terrorist financing.

Therefore, banks are advised to follow certain customer
  identification procedure for opening of accounts and
  monitoring transactions of a suspicious nature for the
  purpose of reporting it to appropriate authority
   Reserve Bank of India has advised banks to make the
    Know Your Customer (KYC) procedures mandatory
    while opening and operating the accounts and has
    issued the KYC guidelines under Section 35 (A) of the
    Banking Regulation Act, 1949.

   Any contravention of the same will attract penalties
    under the relevant provisions of the Act. Thus, the Bank
    has to be fully compliant with the provisions of the KYC
    procedures.
 Customer?
One who maintains an account, establishes business relationship, on
  who’s behalf account is maintained, beneficiary of accounts
  maintained by intermediaries, and one who carries potential risk
  through one off transaction

 Your? Who should know?
Branch manager, audit officer, monitoring officials, PO.

 Know? What you should know?
True identity and beneficial ownership of the accounts
permanent address, registered & administrative address, sources of
  funds, nature of customers’ business etc.
   Opening a new account.
   In respect of accounts where documents as per current KYC
    standards have not been submitted while opening the initial
    account.
   Opening a Locker Facility where these documents are not
    available with the Bank for all the Locker facility holders.
   When the Bank feels it necessary to obtain additional
    information from existing customers based on conduct of
    account.
   When there are changes to signatories, mandate holders,
    beneficial owners etc.
   For non-account holders approaching the Bank for high
    value one-off transactions like Drafts, Remittances etc.
    Sound KYC procedures have particular relevance to the
     safety and soundness of banks, in that:

1.   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;

2.   They provide an essential part of sound risk
     management system (basis for identifying, limiting and
     controlling risk exposures in assets & liabilities

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Kyc norms in banks

  • 1. GROUP 19 Heten Koli -11020241111 Arjun Tamhane-11020241005 Juned Parkar -11020241012
  • 2. KYC (Know Your Customer) is a framework for banks which enables them to know / understand the customers and their financial dealings to be able to serve them better.  Banking operations are susceptible to the risks of money laundering and terrorist financing. Therefore, banks are advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority
  • 3. Reserve Bank of India has advised banks to make the Know Your Customer (KYC) procedures mandatory while opening and operating the accounts and has issued the KYC guidelines under Section 35 (A) of the Banking Regulation Act, 1949.  Any contravention of the same will attract penalties under the relevant provisions of the Act. Thus, the Bank has to be fully compliant with the provisions of the KYC procedures.
  • 4.  Customer? One who maintains an account, establishes business relationship, on who’s behalf account is maintained, beneficiary of accounts maintained by intermediaries, and one who carries potential risk through one off transaction  Your? Who should know? Branch manager, audit officer, monitoring officials, PO.  Know? What you should know? True identity and beneficial ownership of the accounts permanent address, registered & administrative address, sources of funds, nature of customers’ business etc.
  • 5. Opening a new account.  In respect of accounts where documents as per current KYC standards have not been submitted while opening the initial account.  Opening a Locker Facility where these documents are not available with the Bank for all the Locker facility holders.  When the Bank feels it necessary to obtain additional information from existing customers based on conduct of account.  When there are changes to signatories, mandate holders, beneficial owners etc.  For non-account holders approaching the Bank for high value one-off transactions like Drafts, Remittances etc.
  • 6. Sound KYC procedures have particular relevance to the safety and soundness of banks, in that: 1. 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; 2. They provide an essential part of sound risk management system (basis for identifying, limiting and controlling risk exposures in assets & liabilities
  • 7. To prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities . KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently. 4 key elements of KYC policies  1) Customer Acceptance Policy;  2) Customer Identification Procedures;  3) Monitoring of Transactions; and  4) Risk management
  • 8. The Customer Acceptance Policy must ensure that explicit guidelines are in place on the following aspects of customer relationship in the bank. No account is opened in anonymous Parameters of risk perception are clearly defined. Documentation requirements and other information to be collected. Circumstances, in which a customer is permitted to act on behalf of another person/entity, should be clearly spelt out Necessary checks before opening a new account . Not to open an account or close an existing account where the bank is unable to apply appropriate customer due diligence
  • 9. The policy approved by the Board of banks should clearly spell out the Customer Identification Procedure to be carried out at different stages i.e. while establishing a banking relationship. i.e. while establishing a banking relationship; carrying out a financial transaction or when the bank has a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data.  Identifying the customer and verifying his/ her identity by using reliable, independent source documents, data or information.
  • 12. Banks can effectively control and reduce their risk only if they have an understanding of the normal and reasonable activity of the customer –to identify transactions that fall outside the regular pattern of activity. However, the extent of monitoring will depend on the risk sensitivity of the account  The bank may prescribe threshold limits for a particular category of accounts and pay particular attention to the transactions which exceed these limits.
  • 13. The Board of Directors of the bank should ensure that an effective KYC programme is put in place by establishing appropriate procedures and ensuring their effective implementation.  Responsibility should be explicitly allocated within the bank for ensuring that the bank’s policies and procedures are implemented effectively.  Apart from the key elements the other things that a bank should look into customer education, introduction of new technologies, applicability to branches outside India and appointment of principal officer.
  • 14. Why KYC norms required?  Objectives of KYC guidelines  Why do the banks ask for documentary proof for identity and address for opening account?  What is expected from customers?  Why other information?  Is this information kept confidential?  What are the valid documents for ID proof and address proof?  For opening accounts in legal capacity like partnership, companies, trust etc. does one still need to submit information mentioned above?  How can a person having no valid documents open account?
  • 15. Case : Aug 2012 Two public sector banks and one private bank were held accountable by the Reserve Bank of India (RBI), Bangalore, for failure to exercise due diligence in opening bank accounts that enabled online fraudsters to hack into the accounts of genuine customers and walk away with Rs 6.60 lakh, exposing the lax implementation of know your customer (KYC) norms
  • 16. The cases were taken up by the RBI ombudsman after the customers lodged complaints with him; the money trail was traced to Mumbai and Coimbatore; the fraudsters had opened accounts with fake employment letters, residence documents and given fictituous telephone numbers.  The banks were found guilty and went in for appeal to the appellate authority (Deputy Governor, RBI) who upheld two of our verdicts  In another case, a public sector bank was asked to suspend its mobile banking services after its security systems were found to be deficient.
  • 17.  In all, the ombudsman received 3,486 complaints during the year compared to 3,470 last year. -failure to implement commitments made-1,209 . -followed by those pertaining to credit and debit cards - 732 -other categories included levy of service charges without prior permission, loans and advances and recovery agent harassment. -banks had wrongly rejected applications for education loans, which were then rectified by the respective banks. RBI ensures that the grievances are resolved and benefits are restored to the customers, with occasional cases of compensation to them.
  • 18. http:// www.federalbank.co.in/Personal_CustomerRelation_KYCNorms.aspx  http://www.rbi.org.in/scripts/NotificationUser.aspx? Id=2039&Mode=0  http://www.deccanherald.com/content/273722/rbi-raps- banks-violating-kyc.html  http://www.deccanherald.com/content/273722/rbi-raps- banks-violating-kyc.html  www.icicibank.com/ebor/other-products/PhampKYC_1.pdf  www.icsi.edu/docs/.../Announcement%20of%20KYC %20Norms.doc  www.psbindia.com/kyc_norms.php  syndicatebank.in/downloads/Banks-Policy-on-KYC-and- AML.pdf

Editor's Notes

  1. 24th July, 2009