Know Your Customer (KYC) refers to banks obtaining identifying information from customers to prevent money laundering and financing of terrorism. The key aspects of KYC include: 1) Setting up a compliance unit to monitor accounts and transactions on an ongoing basis and update customer information regularly. 2) Obtaining proper identification and information about customers' employment/business when opening accounts or making significant changes. 3) Monitoring transactions to identify any that are unusually large or inconsistent with the customer's history.

1. Know your Customer

2. outline
outline

3. What is KYC?
Know Your Customer – KYC enables banks to
know/understand their customers and their financial
dealings to be able to serve them better and
prudently manage the risks of Money Laundering
and Financing of Terrorism.

4. KYC
KYC/Customer due diligence is an on-going process for prudent banking
practices, therefore the banks are encouraged to: Set up a compliance unit with a full time Head.
 Put in place a system to monitor the accounts and transactions on a regular
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basis.
Update customer information and records at reasonable intervals.
Chalk out plan of imparting suitable training to the staff of bank periodically.
Maintain proper records of customer identifications and clearly indicate, in
writing.
Monitor and check unusually large cash transactions, especially those which are
out of character/ inconsistent with the history.

5. Why KYC?
 To establish the identity of the client. This means identifying the
customer and verifying his/her identity by using reliable, independent
source documents, data or information.
 To ensure that sufficient information is obtained on the nature of
employment/business that the customer does/expects to undertake
and the purpose of the account.
 To prevent banks from being used, intentionally or unintentionally, by
criminal elements for money laundering activities.

6. When does KYC apply?
KYC will be carried out at the following stages:
o Opening a new account.
o Opening a subsequent account where documents as per current KYC
standards have not been submitted while opening the initial account.
o Opening a Locker facility where these documents are not available with
the bank for all the Locker facility holders.
o When the bank feels it necessary to obtain additional information from
existing customers based on conduct of the account.
o When there are changes to signatories, mandate holders, beneficial
owners etc.

7. Are KYC requirements new?
 No ! KYC requirements have always been in place and Banks have been
taking KYC documents in accordance with the guidelines issued by SBP from
time to time. SBP has revisited the KYC guidelines in the context of the
recommendations made by the Financial Action Task Force (FATF) on
Anti Money Laundering Measures and Combating Financing of Terrorism
and enhanced the KYC Standards in line with International benchmarks.
The Financial Action Task Force (FATF) was established in July
1989 by a Group of Seven (G-7) Summit in Paris, initially to
examine and develop measures to combat money laundering.

8. Regulations
 PRUDENTIAL REGULATION XI: KNOW YOUR CUSTOMER (KYC)
•
Banks/DFIs are advised to fully comply with the requirements of Prudential
Regulation No. XI
•
Non-compliance of instructions will attract penal provision under the Banking
Companies Ordinance, 1962.

9. KYC Guidelines
Definition of Customer:
o A customer or entity that maintains an account and/or
has a business relationship with the bank;
o One on whose behalf the account is maintained (i.e. the
beneficial owner)

10. KYC Guidelines
• The Bank/branch shall obtain satisfactory evidence duly
verified/authenticated by the branch manager and shall be placed on
record in respect of
(i) the true identity of the beneficial owners of all accounts opened by a
person, entity etc,
(ii) the real party in interest or controlling person/entity of the
account(s) in case of nominee or minors account.
• The Banks shall obtain “Introduction” on the new account to assess the
prospective customer’s/account holder’s integrity, respectability and
the nature of business etc.
( Introducer is an existing account holder of the same branch )

11. KYC Guidelines
• The Banks are also advised that KYC/customer due diligence is not a
one time exercise to be conducted at the time of entering into a formal
relationship with customer/account holder.
• Each Bank shall formulate and keep in place, in writing, a
comprehensive Know-Your-Customer policy duly approved by their
Board of Directors and in case of branches of foreign banks, approved
by their head office.
• State Bank of Pakistan, during the course of inspection, would
particularly check the efficacy of the KYC system put in place by the
banks and its compliance by all the branches and the staff.

12. KYC Guidelines
Training & Education:
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

13. KYC Guidelines
REGULATION-XI
•
OPENING OF ACCOUNTS
Banks shall make all reasonable efforts to determine the true identity of every
would be account holder. Towards this end, banks shall institute effective
procedure and methods for obtaining proper identification from the new
customers.

14. KYC Guidelines
All reasonable efforts shall be made to determine true identity of every
prospective customer. The following minimum set of documents must be
obtained from various types of customers/ account holder(s).
Individuals:
(i) Attested photocopy of national identity card or passport of the individual.
(ii) In case the NIC does not contain a photograph, the bank should also obtain, in
addition to NIC, any other document such as driver’s license etc that contains
a photograph.
(iii) In case of a salaried person, attested copy of his service card, or any other
acceptable evidence of service, including, but not limited to a certificate from
the employer.
(iv) In case of illiterate person, a passport size photograph of the new account
holder besides taking his right and left thumb impression on the specimen
signature card.

15. KYC Guidelines
Partnership:
(i) Attested photocopies of identity cards of all partners.
(ii) Attested copy of “Partnership Deed” duly signed by all partners of the firm.
(iii) Attested copy of Registration Certificate with Registrar of Firms. In case the
partnership is unregistered, this fact should be clearly mentioned on the
Account Opening form.
(iv) Authority letter, in original, in favor of the person authorized to operate on the
account of the firm.

16. KYC Guidelines
Joint Stock companies:
Certified copies of:
(i) Resolution of Board of Directors for opening of account specifying the
person(s) authorized to operate the company account.
(ii) Memorandum and Article of Association
(iii) Certificate of Incorporation.
(iv) Certificate of Commencement of Business.
(v) Attested photocopies of identity cards of all the directors .

17. KYC Guidelines
Clubs, Societies and Associations:
(i) Certified copies of
Certificate of Registration.
By-laws/Rules & Regulations.
(ii) Resolution of the Governing Body/Executive Committee for opening of
account authorizing the person(s) to operate the account and attested copy of
the identity card of the authorized person(s).
(iii) An undertaking signed by all the authorized persons on behalf of the
institution mentioning that when any change takes place in the persons
authorized to operate on the account, the banker will be informed immediately.

18. KYC Guidelines
Agents Accounts:
(i) Certified copy of “Power of Attorney”.
(ii) Attested photocopy of identity card of the agent.
Trust Account:
(i) Attested copy of Certificate of Registration.
(ii) Attested copies of NIC of all the trustees.
(iii) Certified copies of Instrument of Trust.

19. Important points of KYC
Know your customer standards
II. Customer Acceptance Policy
III. Customer Identification Procedure
IV. Monitoring of Transactions
V. Risk Management
VI. Customer education
VII. KYC for existing accounts
VIII. Appointment of principal officer
I.

20. Money Laundering
o Money laundering is the process by which large amounts of illegally obtained
money (from drug trafficking, terrorist activity or other serious crimes) is given
the appearance of having originated from a legitimate source.

21. Criminal Activities
 Kidnapping
 Drug Trafficking
 Bribery/corruption
 Tax Evasion
 Robbery and Fraud
 Gambling
 Organized crime
•
•
•
Extortion
Prostitution
Smuggling (arms, people, goods)

22. SBP Regulations
 In 2010, the State Bank of Pakistan (SBP) passed the Anti-Money
Laundering Act.
 Since 1990’s regulators, National Accountability Bureau (NAB), Anti-
Narcotics Force (ANF) and Federal Investigation Agency (FIA) are
putting its efforts to combat against these crimes and put a pause to
money laundering completely.

23. SBP Regulations
PRUDENTIAL REGULATION-XII
•
PREVENTION OF CRIMINAL USE OF BANKING
Banks shall follow the following guidelines to safeguard themselves against
their involvement in money-laundering activities, and other unlawful trades.
a) banks shall make reasonable efforts to determine the true identity of customer.
b) Banks shall ensure that banking business is conducted in conformity with high ethical
standards and that banking laws and regulations are adhered to.
c) Specific procedures be established for ascertaining customer’s status and his source of
earnings, for monitoring of accounts on a regular basis.
d) Banks may make arrangements for setting up an Internal Audit System in order to
establish an effective means of testing /checking.

24. Stages of the Money Laundering
1.
Placement
Induction of illegal money into the financial system
1.
Layering
Multiple transactions to confuse the audit trail and distance the
original source of funds (e.g. successive transactions, international
transfers).
1.
Integration
than integrating funds back into the real economy as “clean and
Respectable money

25. Stages of the Money Laundering

26. 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

27. 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 )

28. Reports to be prepaid
• CTR- Currency Transaction Report
For all cash transaction above Rs. 2.5 million.
• STR- Suspicious Transaction Report
e.g.
Transactions which do not make economic sense.
Transactions inconsistent with the customer's business.
Transactions involving large amounts of cash.
Transactions involving transfers to and from abroad.
• FMU is the only designated agency in Pakistan to which suspicious
transaction reports (STRs) and currency transaction reports (CTRs)
shall be made.

29. Thank You