What is KYC?

Know Your Customer KYC enables banks to

know/understand their customers and their
financial dealings to be able to serve them
better and prudently manage the risks of
Money Laundering and Financing of Terrorism

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.
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 transaction

Why KYC?
To establish the identity of the client. This
means identifying the customer and verifying
his/her identity by using reliable, independent
source documents, data or information.
To ensure that sufficient information is obtained
on the nature of employment/business that the
customer does/expects to undertake and the
purpose of the account.
To prevent banks from being used, intentionally
or unintentionally, by criminal elements for money
laundering activities.

When Does KYC Apply?

KYC will be carried out at the following stages:
Opening a new 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 the account.
When there are changes to signatories,
mandate holders, beneficial owners etc.

Advantages of KYC norms

They help to protect banks reputation and the
integrity of banking systems by reducing the
likelyhood 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 in assets
& liabilities)

KYC Guidelines

These guidelines are issued under Section 35

(A) of the Banking Regulation Act, 1949 and any
contravention of the same will attract penalties
under the relevant provisions of the Act. Banks
are advised to bring the guidelines to the
notice of their branches and controlling offices

Core Elements Of KYC

Customer Acceptance Policy
Customer Identification Procedure
Monitoring of Transactions
Risk Management
Customer education

Customer Acceptance Policy

The Customer Acceptance Policy must ensure that
explicitguidelines are in place on the following aspects of
customerrelationship in the bank.
No account is opened in anonymous
Parameters of risk perception are clearly defined.
Documentation requirements and other information to
becollected.
Circumstances, in which a customer is permitted to act on
behalfof 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 thebank is unable to apply appropriate customer
due diligence

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. 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.

Monitoring Of Trancations
On-going monitoring of transactions for
identifying suspicious and high value cash
transactions (Rs. 10 lakhs)
Special attention to all complex, unusually large
transactions and all unusual patterns which have
no apparent economic or visible lawful purpose.
Prescription of threshold limits
Review of risk classification
Reporting to law enforcement authority

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 explicitly allocated within
the bank for ensuring that the banks 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.

Training & Education:

Employee Training Banks should take steps to
provide proper training to its employees on the
statutory/ regulatory requirements and the
internal policy & procedures so that the risks
are well understood and managed. Employees
should also be educated on the need for proper
handling of customer queries.
Customer Education Distribution of pamphlets
etc. .may be considered