Introduction
- The Know Your Customer principles were issued by RBI under the Banking Regulation Act, 1949
- It is related to the identification and verification of depositors with the objective to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities.
- The guidelines are applicable to all accounts including foreign currency accounts/transactions
Review
- The guidelines were revised in line with recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT)
- The current guidelines are in the form of KYC DIRECTIONS 2016 issued by RBI on 25.02.2016
Board Approved KYC Policy
Banks should have Board approved KYC policy with following 4 key elements:- Customer acceptance policy
- Risk management
- Customer identification procedure
- Monitoring of transactions
- Customer Acceptance Policy
Banks should lay down policy on the following aspects of customer relationship in the bank
- No account is opened in anonymous or fictitious/ benami names
- Not to open an account or close an existing account where the bank is unable to verify the identity and/or obtain documents required as per the risk categorisation due to non-corporation of the customer or non-reliability of the data/ information furnished to the bank
- Transactions to be permitted only after compliance of Customer Due Diligence (CDD) procedure
Risk Management
- Banks may prepare a profile for each new customer based on risk categorisation
- The customer may be categorised into low, medium and high-risk categories
Low-risk customers
- Individuals and entities whose identities and sources of wealth can be easily identified and transactions n whose accounts by and large conform to the known profile may be categorised as low risk. Such as
- Salaried Customers
- Lower economic Strata
- Government departments and Government owned companies
- Regulators and statutory bodies
Medium/High Risk Customers
- Customers those are likely to pose a higher than average risk to the bank may be categorised as medium or high risk to the bank may be categorised as medium or high risk.
Banks may apply enhanced due diligence measures in case of
- Non-resident Customers
- High net worth individuals
- Trusts
- Charities
- NGOs and organisations receiving donations
- Company having close family shareholding or beneficial ownership
- Firms with ‘ sleeping partners’
- Politically exposed persons of foreign origin
- Non-face to face to customers
- Those with dubious reputations
Customer Identification Procedure
- Customer identification means identifying the customer and verifying his identity by using reliable, independent source documents or data
- For the natural person:
- Recent photograph and copy of an officially valid document
For Legal Person/entities, the bank should:
- Verify the legal status of the legal person entity through proper and relevant documents
- Verify that any person purporting to act on behalf of the legal person/ entity is so authorised and identify and verify the identity of that person
- Understand the ownership and control structure of the customer and determine who are the natural person who ultimately controls the legal person
Proof of identity’& ‘Proof of address
The Government of India has notified six documents as ‘Officially Valid Documents’ (OVDs) for the purpose of producing proof of identity. These six documents are- Passport
- Driving Licence
- Voters’ Identity Card
- PAN Card
- Aadhaar Card issued by UIDAI
- NREGA Job Card
You need to submit any one of these documents as proof of identity. If these documents also contain your address details, then it would also be accepted as ‘proof of address’. If the document submitted by you for proof of identity does not contain address details, then you will have to submit another officially valid document which contains address details.
Periodic Updation
- Update of customer ID is required at least once in
- 2 years in the case of high-risk customer
- 8 years for medium risk customers
- 10 years for low-risk customers
Closure of Accounts
- Where the bank is unable to apply appropriate KYC measures the bank may consider closing the account or terminating the banking/ business relationship after issuing the due notice to the customer explaining the reasons for the decision. Such decisions need to be taken at a reasonably senior level.
Fine for violation of KYC Norms
- RBI has the power to impose fine under Banking Regulation Act 1949 for violation of KYC norms and for violation of extant guidelines of relating to IPO financing
