AN

INTRODUCTION TO
KYC PROCEDURE
Presented to:- Prof.Mittali Baruah
Presented by :- Shruti Bhavsar
:- Jay Vora
:- Devendra Saraf

Intro.
What is KYC?
kyc intro.mp4
KYC Stands for Know Your Customer. Know
your customer (KYC) policy is an important step
developed globally to prevent identity theft,
financial fraud, money laundering and terrorist
financing.
The objective of KYC is to enable banks to know
and understand their customers better and help
them manage their risks carefully.

Conti.
Reserved 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 regulations act, 1949.
Any contravention of the same will attract penalties
under the relevant provisions of the act.
Thus banks has to fully compliant the KYC
procedures.

What KYC means

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.
Your who should know?
Branch manager, Audit officer, monitoring officials,
PO.

Conti.
Customer?
One who maintains an account, establishes business
relationship, on whos behalf account is maintained,
beneficiary of accounts maintained by intermediaries,
and one who carries potential risk through one off
transactions.

When KYC requires

KYC has to be followed by every financial institute
while dealing with customers. KYC procedure needs
to be adhered to by a customer during following
instances:
While opening an account in a bank
While applying for a credit card or loan
While opening a subsequent account
Opening a locker facility
When there are not enough documents with the bank
in existing account

Conti.
When there are changes in signatories, beneficial
owners, etc
When the bank feels it necessary to obtain additional
information from existing customers based on
conduct of the account
While investing in a mutual fund
Financial institutes may ask for a mandatory KYC
process in other instances too

Objectives of KYC
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

Customer Acceptance Policy

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.
where the bank is unable to apply appropriate
customer due diligence

Conti.
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

Customer Identification Procedure

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. 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.

Walk-in Customers
Salaried Employees
Trust/Nominee or Fiduciary Accounts
Accounts of companies and firms
Client accounts opened by professional
intermediaries
Accounts of Politically Exposed Persons (PEPs)
resident outside India
Accounts of non-face-to-face customers
Accounts of proprietary concerns

Customer identification Individual

Attested photocopy of national identity card or passport
of the individual.
In case the NIC does not contain a photograph, the bank
should also obtain, in addition to NIC, any other
document such as drivers license etc that contains a
photograph.
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.
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.

Partnership firms
Attested photocopies of identity cards of all partners.
Attested copy of Partnership Deed duly signed by
all partners of the firm.
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.
Authority letter, in original, in favor of the person
authorized to operate on the account of the firm.

Joint Stock Companies

Certified copies of:
(i) Resolution of Board of Directors for opening of
account specifying the persons 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.

Clubs, Societies, 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.

MONITORING OF TRANSACTION
Ongoing monitoring is an essential element of
effective KYC procedures.
Banks can effectively control and reduce their risk
only if they have an understanding of the normal and
reasonable activity of the customer and 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 the limits.
The risk categorization of customers as also
compilation and periodic updation of customer
profiles and monitoring and closure of alerts in
accounts by banks are extremely important for
effective implementation of KYC/AML/CFT
measures.

CLOSURE OF ACCOUNTS
Where the bank is unable to apply appropriate KYC
measures due to non-providing of information or noncooperation by the customer, the bank should
consider closing the account or terminating the
banking/business relationship after issuing due notice
to the customer explaining the reasons for taking such
a decision.
Such decisions need to be taken at a reasonably
senior level.

RISK MANAGEMENT
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 clear allocated within the
bank for ensuring that the banks policies and
procedures are implemented effectively.
Concurrent/ Internal Auditors should specifically
check and verify the application of KYC procedures
at the branches and comment on the lapses observed
in this regard.

ADVANTAGES OF KYC
Sound KYC procedures have particular relevance to
the safety and soundness of banks.
KYC helps in protection of 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)

DIFFERENT CATEGORIZATION OF
CUSTOMER IN KYC?
Salaried people, Housewife, Retired person and
Student are included in Low risk customer.
Company Director, Trust, Club, Self employed
professionals, Public and Private Limited Company,
Society are included in Medium risk customer.
Proprietorship, Partnership are included in High risk
customer.

TENURE FOR CHECKING KYC VERIFICATION?

Low risk customer KYC verification is done at 10

years.
Medium risk customer KYC verification is done at 8
years.
High risk customer KYC verification is done at 2
years.

WHO ARE EXEMPTED FROM KYC VERIFICATION?

Government Entities are exempted from KYC

verification.
Eg. Municipality

TRAINING FOR KYC

DURATION:
Approximately one week.
TARGET AUDIENCE:
This AML/CFT training is especially designed for
Customer Due Diligence analysts and Team Leaders.
It is also very relevant for Customer Support staff,
AML Compliance officers.
CFT :- Combating of Financial Terrorism.

COURSE OBJECTIVES:
At the end of the training, participants be able to:
1. Coherently discuss the global social context of
financial economic crime;
2. Understand the international regulatory AML/CFT
framework;
3. Explain the importance of KYC in the context of
AML/CTF;
4. Apply the Banks standards, procedures and tooling;

 Apply CDD skills in the context of client types,

banking products and services;
Demonstrate awareness of suspicious KYC
situations;
Communicate and negotiate effectively with internal
and external KYC stakeholders;
Demonstrate KYC skills by successfully completing
the knowledge and awareness assessment.
CDD :- Customer Due Diligence

TRAINING METHODOLOGY

Mostly face-to-face, classroom sessions in groups of

approximately 15 to 20 participants to promote
debates in analyzing relevant cases.
This enhances the learning process, team-working
and communication skills.

KYC OF KALUPUR BANK

Kalupur bank being the business of banking, are
under statutory obligation to comply to the provisions
of the Prevention of Money Laundering Act, 2002
and the rules made there under and the guidelines
issued by the Reserve Bank of India on Know Your
Customer (KYC) Policy.
kyc forms kalupur.pdf

KYC OF HDFC BANK

HDFC Extended-KYC-Annexure-Individ
uals.pdf

KYC OF INDIAN BANK

KYC-CHANGE_FORM.pdf

Real-Time Account On-boarding Risk (RAOR)

When a customer walks in to a bank or FI to open an

account this model is executed to assess the risk of a
Customer if it is configured by the bank or an FI.
Refer to Services guide for more details on
configuring this model.

 KYC assesses the risk of a customer by considering

different parameters based on the customer type and
relationship of the customer with the bank or FI.
If the customer is establishing a new relationship with
the bank, then KYC assesses the customer through
different parameters.
If the customer already has a relationship with the
bank or FI, then KYC provides the latest score of the
customer from the KYC Risk Assessment Process.

Risk Assessment Models

KYC risk assessment process looks
for information required to determine
a customers effective risk score.
Inaddition to the parameters defined
in the models, KYC considers the
following input information.
Algorithm based
Rule based

1. Rule-based Assessment Model

. Rule-based assessment calculates a CER score based
on client configurable rules.
. Rule-based assessment model is executed only if it is
chosen by the bank or FI for an installation.
. This option can be decided using the Rule-based
assessment parameter available in the jurisdictionspecific Application Parameters table.
. CER:- Customer Effective Risk

2. Algorithm-based Assessment Model

Customers who are not assessed using the Rule-based
Assessment model are assessed using Algorithmbased Assessment Model.
Algorithm-based Assessment Model calculates the
risk of customers based on different parameters which
are based on customer type.

Anti-Money Laundering
What is AML ?
'Money Laundering' is the process by
which illegal funds and assets are
converted into legitimate funds and
assets.
Illegal /
Dirty
Money

Conversion

Legal /
white
Money

 Money Laundering as per section 3 of the Prevention

Money Laundering Act: Whosoever directly or indirectly attempts to indulge
or knowingly assists or knowingly is a party or is
actually involved in any process or activity connected
with the proceeds of crime and projecting it as
untainted property shall be guilty of offence of money
laundering.
As per Sub - Committee on Narcotics and Terrorism of
US Senate Foreign Relations Committee:Money Laundering is the conversion of profits from
illegal activities into financial assets which appear to
have legitimate origins.

Money Laundering
washing of the
generated from:

generally
proceeds

refers to
or profits

Kidnapping
Extortion

Prostitution

Drug
Trafficking

Criminal
Activities

Gambling,
Robbery,
Cheating

Smuggling
(arms, people,
goods)
Terrorist Act

Bribery
& Corruption

Counterfeiting
& Forgery

Predicate Crimes
Corruption and Bribery
Fraud
Organized crime
Drug and human trafficking
Environmental crime
Terrorism
Other serious crimes

INTEGRATION
The last stage in the
laundering process.
Occurs when the laundered
proceeds are distributed
back to the criminal.
Creates appearance of
legitimate wealth.

PLACEMENT
Initial introduction of
criminal proceeds into the
stream of commerce
Most vulnerable stage of
money laundering process

LAYERING
Involves distancing the money
from its criminal source:
movements of $ into
different accounts
movements of money to
different countries
Increasingly difficult to detect.

Stock Markets
Agricultural Products (as there is no income tax and mostly the
transactions are on cash basis)
Property Market
Creating Bogus Companies
Showing Loans
False Export Import Invoices

Customer Education
Implementation of KYC procedures requires banks to
demand certain information from customers which
may be of personal nature or which has hitherto never
been called for. This can sometimes lead to a lot of
questioning by the customer as to the motive and
purpose of collecting such information.
There is, therefore, a need for banks to prepare
specific literature/ pamphlets etc. so as to educate the
customer of the objectives of the KYC programme.
The front desk staff needs to be specially trained to
handle such situations while dealing with customers.

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