In these days of frauds ,terrorism, KYC has become the buzz word in financial sector. Before the implementation of KYC Policy, banks used to ask for an introduction from an existing customer to open a new account, even though an introducer cannot be sued or otherwise held responsible for any mishap, and it became a very common practice to introduce anyone to the bank without knowing its consequences. In 2002, RBI directed all banks to meticulously follow the KYC guidelines to curb the financial frauds effectively and to make banks comfortable with the bonafide and integrity of customers.
Objective: Objective of KYC is to prevents banks from being used, intentionally or unintentionally,by criminal elements for money laundering or financial terrorism or fraud. It enables banks to understand their customer and their financial dealings which in turn help to manage risk prudently.It is the platform used by banks to control frauds and identify money laundering.
Standard: Customer has been defined as an individual or entity having account or financial dealings or one on whose behalf account is maintained. KYC policy is compilation of 4 elements –
i)Customer Acceptance policy : Branch may not open account of a person whose identity cannot be verified. If branch is not satisfied with the identity or somehow it is found that the person is having criminal background or connection with terrorist group,branch may close the account or terminate banking relationship after sending a notice explaining the reason.
ii)Identification Procedure : identification is done on the basis of documents provided by the customer as (a) proof of identity and (b) proof of address. Board of directors of the bank should have in place adequate policies to establish procedure to verify identification. But in case of small deposit accounts like No Frill A/cs, some relaxation is granted to the individuals as they are in no position to provide required KYC documents. Documents differs along with the nature of customer type , e.g., minor,company,trust,NRI etc. iii)Monitoring of Transaction : If the transaction amount in a single a/c exceeds Rs. 10 Lacs(Dr or Cr) in a calendar month,the a/c should be monitored cautiously. If any suspicious nature is found,that should be reported to Financial Intelligence Unit – India. iv)Risk Management : According to the source of fund and nature of transaction, customers are categorized in 3 groups – Low risk, Medium risk and High risk.
Existing customer : In case of existing customers without KYC, banks are expected to turn them into fully KYC complied customers by getting appropriate documents otherwise this may levy a penalty from banks. Conclusion : Money laundering through bank not only affects the bank’s image but also the officials who were used as instruments in the process. A banker loses any statutory protection u/s 131 of NI Act if it found that KYC was not done properly. In a broader sense it affect the country’s economy also. In the whole process we need to ensure KYC adherence by convincing the customers that all these are for their long term interest. Also ensure that extra rigidity may lose in banking business by way of denial of banking service.
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