Posts
1. What is KYC?
KYC is an acronym for “Know your Customer”, a
term used for customer identification process. It involves making reasonable
efforts to determine true identity and beneficial ownership of accounts, source
of funds, the nature of customer’s business, reasonableness of operations in
the account in relation to the customer’s business, etc which in turn helps the
banks to manage their risks prudently. The objective of the KYC guidelines is
to prevent banks being used, intentionally or unintentionally by criminal elements
for money laundering.
KYC has two components - Identity and Address.
While identity remains the same, the address may change and hence the banks are
required to periodically update their records.
2. Is there any legal backing for verifying
identity of clients?
Yes. Reserve Bank of India has issued
guidelines to banks under Section 35A of the Banking Regulation Act, 1949 and
Rule 7 of Prevention of Money-Laundering (Maintenance of Records of the Nature
and Value of Transactions, the Procedure and Manner of Maintaining and Time for
Furnishing Information and Verification and Maintenance of Records of the
Identity of the Clients of the Banking Companies, Financial Institutions and
Intermediaries) Rules, 2005. Any contravention thereof or non-compliance shall
attract penalties under Banking Regulation Act.
3. I want to keep a fixed deposit in a bank.
Is KYC - applicable to me?
Yes. KYC is applicable to customers of the
bank. For the purpose of KYC following are the ‘Customers of the bank.
a person or entity that maintains an account
and/or has a business relationship with the bank;
one on whose behalf the account is maintained
(i.e. the beneficial owner);
beneficiaries of transactions conducted by
professional intermediaries, such as Stock Brokers, Chartered Accountants,
Solicitors etc. as permitted under the law, and
any person or entity connected with a
financial transaction which can pose significant reputational or other risks to
the bank, say, a wire transfer or issue of a high value demand draft as a
single transaction.
4. Is there any procedure specified for
Customer Identification?
Customer identification means identifying the
customer and verifying his/her identity by using reliable, independent source
documents, data or information. Banks have been advised to lay down Customer
Identification Procedure to be carried out at different stages 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.
5. Once KYC requirements are complied with
while opening the account, whether the bank can again ask for KYC compliance
from me?
Yes. To ensure that the latest details about
the customer are available, banks have been advised to periodically update the
customer identification data based upon the risk category of the customers.
Banks create a customer profile based on
details about the customer like social/financial status, nature of business
activity, information about his clients’ business and their location, the
purpose and reason for opening the account, the expected origin of the funds to
be used within the relationship and details of occupation/employment, sources
of wealth or income, expected monthly remittance, expected monthly withdrawals
etc. When the transactions in the account are observed not consistent with the
profile, bank may ask for any additional details / documents as required. This
is just to confirm that the account is not being used for any Money
Laundering/Terrorist/Criminal activities.
6. I had submitted my driving licence as a
proof of identity and address but still the bank asked for telephone /
electricity bill.
There are two aspects of Customer
Identification. One is establishing identity and the other is establishing
present residential address.
For establishing identity, the bank requires
any authentic document carrying photo of the customer such as driving licence/
passport/ pan card/ voters' card etc. Though these documents carry the
residential address of the customer, it may not be the present address.
Therefore, in order to establish the present address of the customer, in
addition to passport/ driving licence / voters' card / pan card, the bank may
ask for utility bills such as Telephone / Electricity bill etc.
