Know Your Customers (KYC)
KYC Norms and Guidelines
Need for KYC guidelines:
As per the RBI circular
DBOD. No. AML.BC.18/ 14.01.001/2002-2003 dated August 16, 2002 and
DBOD.AML. BC. No.83/14.01.001/2003-2004 dated May 12, 2004
RBI has formulated guidelines of the Know Your Customer (KYC) principle so that
banks are safeguarded against being misused for any financial fraud, money
laundering and financing of terrorist activities.
KYC makes the banks vigilant while opening the account for a new customer and
enables them to understand their financial dealings better.
Compliance with KYC norms is revisited by RBI in the context of recommendations made
by the Financial Action Task Force (FATF). This inter-governmental body has set the
standards to be followed under Anti-money laundering (AML) and Combating
Financing of Terror(CFT).
Hence KYC compliance is also important to maintain international relations and
credibility.
RBI has given explicit guidelines on each of the four elements of KYC Guidelines
Customer Identification:
Customer identification should generally be from reliable
independent source documents.
The documents which are proof of identity are:
Passport
Permanent account number (PAN)
Voter identity card
Driving license
Identity card issued by the employer if acceptable to the
bank
For proof of home address copy of the latest telephone bill,
electricity bill or statement of a bank account is
accepted.
Customer Acceptance Policy (CAP):
- Bank cannot open any account in fictitious or anonymous name.
- The bank should clearly define its perception of risk parameters for different categories of
customers divided into low, medium, and high risk (based on their nature of work, location,
sources of funds, social status, etc.).
iii. Bank should collect documents and information about its customer, keeping in mind
requirements as per PML Act, 2002 and guidelines issued from time to time by RBI.
- If the bank is unable to apply appropriate customer due to diligence measures, i.e., the bank is
unable to verify the identity and /or obtain documents required as per the risk categorization
due to non-cooperation of the customer or non reliability of the data/ information furnished
to the bank, the bank need not open an account or close an existing account
- Bank has to spell out clearly the circumstances in conformity with the banking law and
practice when a customer is permitted to act on behalf of another person/entity.
- Bank has to do the necessary checks to ensure that the new customer identity does not
match with any person known with any banned activities as individual terrorists or terrorist
organizations or any criminal background
Risk Management:
The Board of Directors of the bank is responsible for the effective implementation of KYC
the program, for that they have to ensure that there is an adequate system and procedures
to cover proper management controls training and all related matters.
Banks’ internal audit and compliance functions play an important role in evaluating and
ensuring KYC policies and procedures. Banks should ensure that their
audit department staff is well-versed in such policies and procedures.
Concurrent/ Internal Auditors should need to check and verify the application of KYC
procedures at the branches and send their compliance report to the Audit Committee of the
Board on quarterly intervals. There has to be an ongoing employee training program in KYC
procedures to make them understand the rationale behind KYC policy and its consistent
implementation
KYC Guidelines:
Important Elements of KYC Guidelines are:
Customer acceptance policy
Customer identification procedures
Monitoring of transactions
Risk management
KYC is essential to open a bank account, and people need to know why KYC
Good Article
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