Kyc norms in banks

GROUP 19
Heten Koli -11020241111
Arjun Tamhane-11020241005
Juned Parkar -11020241012

 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

 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.

 Customer?
One who maintains an account, establishes business relationship, on
who’s behalf account is maintained, beneficiary of accounts
maintained by intermediaries, and one who carries potential risk
through one off transaction

 Your? Who should know?
Branch manager, audit officer, monitoring officials, PO.

 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.

 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.

 Sound KYC procedures have particular relevance to the
safety and soundness of banks, in that:

1. 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;

2. They provide an essential part of sound risk
management system (basis for identifying, limiting and
controlling risk exposures in assets & liabilities

 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

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

 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. while establishing a banking
relationship; 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.

 Banks can effectively control and reduce their risk only if
they have an understanding of the normal and
reasonable activity of the customer –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 these limits.

 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 explicitly allocated within the bank
for ensuring that the bank’s policies and procedures are
implemented effectively.

 Apart from the key elements the other things that a bank
should look into customer education, introduction of new
technologies, applicability to branches outside India and
appointment of principal officer.

 Why KYC norms required?
 Objectives of KYC guidelines
 Why do the banks ask for documentary proof for identity
and address for opening account?
 What is expected from customers?
 Why other information?
 Is this information kept confidential?
 What are the valid documents for ID proof and address
proof?
 For opening accounts in legal capacity like partnership,
companies, trust etc. does one still need to submit
information mentioned above?
 How can a person having no valid documents open
account?

 Case : Aug 2012

Two public sector banks and one private bank
were held accountable by the Reserve Bank of
India (RBI), Bangalore, for failure to exercise
due diligence in opening bank accounts that
enabled online fraudsters to hack into the
accounts of genuine customers and walk away
with Rs 6.60 lakh, exposing the lax
implementation of know your customer (KYC)
norms

 The cases were taken up by the RBI ombudsman after the
customers lodged complaints with him; the money trail was
traced to Mumbai and Coimbatore; the fraudsters had
opened accounts with fake employment letters, residence
documents and given fictituous telephone numbers.

 The banks were found guilty and went in for appeal to the
appellate authority (Deputy Governor, RBI) who upheld two
of our verdicts

 In another case, a public sector bank was asked to suspend
its mobile banking services after its security systems were
found to be deficient.

 In all, the ombudsman received 3,486 complaints during
the year compared to 3,470 last year.
-failure to implement commitments made-1,209 .
-followed by those pertaining to credit and debit cards - 732
-other categories included levy of service charges without
prior permission, loans and advances and recovery agent
harassment.
-banks had wrongly rejected applications for education
loans, which were then rectified by the respective banks.

RBI ensures that the grievances are resolved and benefits
are restored to the customers, with occasional cases of
compensation to them.

 http://
www.federalbank.co.in/Personal_CustomerRelation_KYCNorms.aspx
 http://www.rbi.org.in/scripts/NotificationUser.aspx?
Id=2039&Mode=0
 http://www.deccanherald.com/content/273722/rbi-raps-
banks-violating-kyc.html
 http://www.deccanherald.com/content/273722/rbi-raps-
banks-violating-kyc.html
 www.icicibank.com/ebor/other-products/PhampKYC_1.pdf
 www.icsi.edu/docs/.../Announcement%20of%20KYC
%20Norms.doc
 www.psbindia.com/kyc_norms.php
 syndicatebank.in/downloads/Banks-Policy-on-KYC-and-
AML.pdf

Kyc norms in banks

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