Know Your Customer   Guidelines of Reserve Bank of India to all Banks

 

As part of 'Know Your Customer' (KYC) principle, the Reserve Bank has issued several guidelines relating to identification of depositors and advised banks to put in place systems and procedures to help control financial frauds, identify money laundering and suspicious activities and for scrutiny/monitoring of large value cash transactions. The Reserve Bank has also from time to time advised banks to be vigilant while opening accounts for new customers to prevent misuse of the banking system for perpetration of frauds. With a view to safeguarding banks from being unwittingly used for transfer or deposit of funds derived from criminal activity (both in respect of deposit and borrowal accounts), or for financing of terrorism, the Reserve Bank has consolidated its extant instructions on the subject. The guidelines are also applicable to foreign currency accounts/transactions. The consolidated instructions are:

 

 

KYC Policy

 

For New Accounts:

"Know Your Customer" (KYC) procedure should be the key principle for identification of an individual/corporate opening an account. The customer identification should entail verification through an introductory reference from an existing account holder/a person known to the bank or on the basis of documents provided by the customer.

 

Banks' Board of Directors should put in place adequate policies that establish procedures to verify the bonafide identification of individual/corporates opening an account. The Board should also have in place policies that establish processes and procedures to monitor transactions of suspicious nature in accounts and have systems of conducting due diligence and reporting of such transactions.

 

Customer Identification:

The objectives of the KYC framework should be two fold, (i) to ensure appropriate customer identification and (ii) to monitor transactions of a suspicious nature. Banks should obtain all information necessary to establish the identity/legal existence of each new customer, based preferably on disclosures by customers themselves. Easy means of establishing identity would be documents such as passport, driving license, etc. Where such documents are not available, verification by existing account holders or introduction by a person known to the bank may suffice. It should be ensured that the procedure adopted does not lead to denial of access to the general public for banking services.

 

For Existing Customers:

Banks are expected to have adopted due diligence and appropriate KYC norms at the time of opening of accounts in respect of existing customers. In case of any omission, the requisite KYC procedures for customer identification should be completed at the earliest.

 

Cash Transactions:

Banks are required to issue travellers cheques, demand drafts, mail transfers and telegraphic transfers for Rs.50,000 and above only by debit to customers' accounts or against cheques and not against cash. Applicants (whether customers or not) should furnish permanent (income tax) account number (PAN) on the application for issue of travellers cheques, demand drafts, mail transfers and telegraphic transfers if the amount exceeds Rs. 50,000.

 

Banks are required to keep a close watch of cash withdrawals and deposits for Rs.10 lakh and above in deposit, cash credit or overdraft accounts and keep record of details of these large cash transactions in a separate register.

 

Banks' branches are required to report all cash deposits and withdrawals of Rs.10 lakh and above as well as transactions of suspicious nature with full details in fortnightly statements to their controlling offices. Controlling offices are also required to apprise their head offices regarding transactions of suspicious nature.

 

Risk Management:

In order to check possible abuse of banking channels for illegal and anti-national activities, the Board should clearly lay down a policy for ensuring adherence to the requirements as under :

 

Internal Control Systems:

Duties and responsibilities should be explicitly allocated for ensuring that policies and procedures are managed effectively and that there is full commitment and compliance to an effective KYC programme in respect of both existing and prospective deposit accounts. Banks' controlling offices should periodically monitor strict adherence to the laid down policies and procedures by the officials at the branch level.

 

Terrorism Finance:

The Reserve Bank has been circulating lists of terrorist entities notified by the Government of India to banks so that banks may exercise caution if any transaction is detected with such entities. There should be a system at the branch level to ensure that such lists are consulted in order to determine whether a person/ organisation involved in a prospective or existing business relationship appears on such a list. The authority to whom banks may report accounts suspected to belong to terrorist entities would be advised in consultation with the government.

 

Internal Audit/Inspection:

An independent evaluation of the controls for identifying high value transactions should be carried out on a regular basis by the internal audit function in banks.

 

Concurrent/internal auditors must specifically scrutinise and comment on the effectiveness of the measures taken by branches in adoption of KYC norms and steps towards prevention of money laundering. Such compliance report should be placed before the audit committee of the bank's board at quarterly intervals.

 

Identification and Reporting of Suspicious Transactions:

Banks should ensure that branches and controlling offices report transactions of suspicious nature to the appropriate law enforcement authorities designated under the relevant laws governing such activities. There should be well laid down systems for freezing of accounts as directed by such authority and reporting the matter to the controlling office and head office. Being matters of sensitive nature, there must be quarterly reporting of such aspects to the audit committee of the board or the board of directors.

 

Adherence to FCRA, 1976:

Banks should adhere to the instructions on the provisions of the Foreign Contribution Regulation Act (FCRA), 1976 cautioning them to open accounts or collect cheques only in favour of associations which are registered under the Act by the Government of India. A certificate stating that the association is registered with the Government of India should be

obtained from the concerned association at the time of opening of the account or collection of cheques.

 

Banks should advise their branches to exercise due care to ensure compliance and desist from opening accounts in the name of banned organisations and those without requisite registration.

 

Records:

Financial intermediaries should prepare and maintain documentation on their customer relationships and transactions to meet the requirements of relevant laws and regulations, to enable any transaction effected through them to be reconstructed. In the case of wire transfer transactions, the records of electronic payments and messages must be treated in the same way as other records in support of entries in the account. All financial transactions records should be retained for at least five years after the transaction has taken place and should be available for perusal and scrutiny of audit functionaries as well as regulators as and when required.

 

Training:

Banks must have an ongoing training programme so that staffs are adequately trained for their roles and responsibilities as appropriate to their hierarchical level in complying with anti-money laundering guidelines and for implementing KYC policies consistently.

 

(From RBI Website)