This document provides information about a lecture on the Prevention of Money Laundering Act (PMLA) and Know Your Customer (KYC) norms given by Ms. A. Revathy at SRI KRISHNA ARTS & SCIENCE COLLEGE. The key points covered include: 1) PMLA came into force in 2005 to prevent money laundering and seize illegally obtained property. It applies to banks, financial institutions, securities brokers and other intermediaries. 2) KYC norms require these entities to identify customers, monitor transactions, and report suspicious activities to authorities. Maintaining proper records for 10 years is mandatory. 3) Suspicious transactions include large or unusual transactions

1. SRI KRISHNA ARTS & SCIENCE COLLEGE
[An Autonomous Institution]
Ranked 29th in NIRF; MHRD: 1st in Institutional Swachh bharat Ranking
Coimbatore – 641 008
BANKING THEORY AND PRACTICE
I B.Com CA A, IT A
Topic : PMLA Act, KYC Norms
Unit 2 – Lecture 4
Facilitator
Ms.A. Revathy.
Assistant Professor
Department of Commerce CA
SKASC

2. BANKING THEORY AND PRACTICE
TOPICS
□PMLA Act
□KYC Norms

3. Animated Video
PMLA Act , KYC Norms
References:
https://www.youtube.com/watch?v=ZAkjrccOtAQ
CAMS Online Trading
Expert Video

4. Prevention of Money Laundering Act , 2002
□ PMLA Act came into force with effect from 01st July, 2005
□ The Act extend to whole of India except J&K
Object:
□ To prevent money- laundering, seize the property with authority, involved in
money laundering
Administration:
□ Directorate of Enforcement of the Department of Revenue, Ministry of
Finance

5. Various Rules came into effect from July
2005
□Rules detailing Powers of Director FIU & ED
□Rules detailing the method of attachment of property, period of
retention etc.
□Rules detailing the receipt & management of confiscated assets
□Rules relating to legal obligations of reporting entities

6. According to Section 12 PMLA and the Rules impose obligations on :
□ Banking companies
□ Financial institutions
□ Intermediaries of the securities market
□ To maintain records
□ furnish information
□ verify identity of clients

7. □ “Banking Company” under PMLA includes:
All nationalized banks, private Indian banks and private foreign banks
□ All co-operative banks viz. primary co-operative banks, state co-operative banks and central (district
level) co-operative banks
□ State Bank of India and its associates and subsidiaries
□ Regional Rural Banks
□ “Financial Institution” under PMLA includes:
□ Financial Institutions as defined in Section 45-I of the RBI Act namely EXIM Bank, NABARD, NHB,
SIDBI, IFCI Ltd., IDFC Ltd., IIBI Ltd. and TFCI Ltd.
□ Insurance companies
□ Hire Purchase companies
□ Chit fund companies as defined in the Chit Funds Act.

8. □ “Intermediary” under PMLA includes:
□ Persons registered under Section 12 of the Securities and Exchange Board of
India (SEBI) Act, 1992:
□ Stock brokers
□ Sub-brokers
□ Share transfer agents
□ Registrars to issue
□ Merchant bankers
□ Underwriters
□ Portfolio Managers

9. Obligations of reporting entities
□ Appointment of Principal Officer: –
□ Every reporting entity shall communicate the name, designation and
address of the Principal Officer to the Director, FIU-IND
□ Furnishing of information by the Principal Officer: –
□ furnish the information referred to in the Rules to the authorities
□ retain copy of such information for the purposes of official record

10. Requirements Under the Act
Every Broker shall
□ maintain a record of all transactions, the nature and value of which may be
prescribed, whether such transactions comprise of a single transaction or a
series of transactions integrally connected to each other, and where such
series of transactions take place within a month;
□ furnish information of transactions referred to in clause to the Director
within such time as may be prescribed; (i.e. every month) verify and
maintain the records of the identity of all its clients, in such manner as may
be prescribed (i.e. KYC)

11. Every broker has to maintain the record of
□ All cash transactions of the value of more than Rs 10 lakh or its equivalent
in foreign currency.
□ All series of cash transactions integrally connected to each other which
have been valued below Rs 10 lakh or its equivalent in foreign currency
where such series of transactions take place within one calendar month.
□ All suspicious transactions whether or not made in cash and including,
inter-alia, credits or debits into from any non monetary account such as
DEMAT account, security account maintained by the registered
intermediary

12. □ Suspicion Transactions
□ Funds derived from illegal activities
□ Conducted to disguise such funds
□ No apparent purpose
□ Not the sort of transaction the customer would enter into
□ No reasonable explanation considering the background and purpose
□ Examples:
□ Large transactions or patterns , Clients with links to criminals , False ID documents or not
face to face , Multiple accounts , Sudden activity in dormant accounts , Use of different
accounts alternately

13. □ Client Identity
□ Identity of clients
□ Current and permanent address
□ Nature of business
□ Financial status
Maintain records of the identity of clients for a period of 10 years from
the date of cessation of the transactions with the client(Rule 10)

14. What is KYC ?
□ 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

15. □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.

16. When does KYC Apply?
□ 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.

17. Advantages of KYC
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

18. Objective of KYC Guidelines
□ 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
□ Customer Acceptance Policy;
□ Customer Identification Procedures;
□ Monitoring of Transactions; and
□ Risk management

19. TEST YOUR KNOWLEDGE

20. SKASC 20