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Tuesday, 20 September 2016

KYC-Know Your Customer and AML-Anti Money Laundering policy

KYC Know Your Customer , AML Anti Money Laundering,CFT Combating of Financial Terrorism policy guidelines by RBI

The objective of KYC/AML/CFT guidelines is to prevent banks/FIs from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks/FIs to know/understand their customers and their financial dealings better and manage their risks prudently. 

KYC Policy -Know Your Customer Policy Guidelines issued by RBI

Banks/FIs should frame their KYC policies incorporating the following four key elements: 
1. Customer Acceptance Policy (CAP); 
2.Customer Identification Procedures (CIP); 
3.Monitoring of Transactions; and 
4.Risk Management 

1.Customer Acceptance Policy (CAP)

Banks/FIs should develop clear customer acceptance policies and procedures, including a description of the types of customers that are likely to pose a higher than average risk to the bank/FIs and including the following aspects of customer relationship in the bank/FIs. 
(i) No account is opened in anonymous or fictitious/benami name. 
(ii) Parameters of risk perception are clearly defined in terms of the nature of business activity, location of the customer and his clients, mode of payments, volume of turnover, social and financial status, etc. so as to enable the bank/FIs in categorizing the customers into low, medium and high risk ones. 
(iii) Documents and other information to be collected from different categories of customers depending on perceived risk and the requirements of PML Act, 2002 and instructions/guidelines issued by Reserve Bank from time to time. 
(iv) Not to open an account where the bank/FI is unable to apply appropriate customer due diligence measures, i.e., the bank/FI is unable to verify the identity and /or obtain required documents either due to non-cooperation of the customer or non-reliability of the documents/information furnished by the customer. 
(v) Circumstances, in which a customer is permitted to act on behalf of another person/entity, should be clearly spelt out in conformity with the established law and practice of banking. 
(vi) The bank/FI should have suitable systems in place to ensure that the identity of the customer does not match with any person or entity, whose name appears in the sanction lists circulated by the Reserve Bank. 

2. Customer Identification Procedure (CIP)

Customer identification means undertaking client due diligence measures while commencing an account-based relationship including identifying and verifying the customer and the beneficial owner on the basis of one of the OVDs. Banks/FIs need to obtain sufficient information to establish, to their satisfaction, the identity of each new customer, whether regular or occasional, and the purpose of the intended nature of the banking relationship.

“Officially valid document” (OVD):OVD means the passport, the driving licence, the Permanent Account Number (PAN) Card, the Voter's Identity Card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government, letter issued by the Unique Identification Authority of India containing details of name, address and Aadhaar number, or any other document as notified by the Central Government in consultation with the Regulator. 

Simplified Measures for Proof of Address:

The additional documents mentioned above shall be deemed to be OVDs under ‘simplified measure’ for the ‘low risk’ customers for the limited purpose of proof of address where customers are unable to produce any OVD for the same. (vi) Small Accounts If an individual customer does not possess either any of the OVDs or the documents applicable in respect of simplified procedure above, then ‘Small Accounts’ may be opened for such an individual. A ‘Small Account' means a savings account in which: 
  •  the aggregate of all credits in a financial year does not exceed rupees one lakh; 
  •  the aggregate of all withdrawals and transfers in a month does not exceed rupees ten thousand and 
  •  the balance at any point of time does not exceed rupees fifty thousand. 
A ‘small account’ maybe opened on the basis of a self-attested photograph and affixation of signature or thumb print. 

3.Monitoring of Transactions

Ongoing monitoring :Ongoing monitoring is an essential element of effective KYC/AML procedures. Banks/FIs should exercise ongoing due diligence with respect to every customer and closely examine the transactions to ensure that they are consistent with the customer’s profile and source of funds as per extant instructions. High risk accounts have to be subjected to more intensified monitoring. 

4.Risk Management

Banks/FIs should exercise on going due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge about the clients, their business and risk profile and where necessary, the source of funds. The Board of Directors should ensure that an effective AML/CFT programme is in place by establishing appropriate procedures and ensuring their effective implementation. It should cover proper management oversight, systems and controls, segregation of duties, training of staff and other related matters 

This article is prepared based on the RBI’s Master Circular on Know Your Customer (KYC) norms/Anti-Money Laundering (AML)standards/Combating Financing of Terrorism (CFT)/Obligation of banks and financial institutions under Prevention of Money Laundering Act, (PMLA), 2002.Here is the official link. 
For detailed reading you can download PDF version of the RBI’s Master Circular on Know Your Customer (KYC) norms available on the Indian Institute of Banking and Finance’ official website. 
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