KYC AML CFT

Reserve Bank of India has issued guidelines on KYC-AML-CFT 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. Hence, any contravention thereof or non-compliance by bank shall attract penalties under Banking Regulation Act.

All Branches will send their confirmation on Quarterly basis to their Regional Authorities for having complied fully with the KYC–AML-CFT guidelines of the bank while opening new accounts as well as in all existing accounts in the first week of succeeding month of the every quarter and will preserve record thereof for inspection purpose.

All Regional Authorities will also send their confirmation on Half Yearly basis to the Principal Officer (General Manager Operations & Services) of the bank for having complied fully with KYC-AML-CFT guidelines of the bank while opening new accounts as well as in all old existing accounts by all their branches in the first week of succeeding month of every half year and will preserve record of quarterly confirmations received from branches as well preserve record of half yearly confirmations sent to the Principal Officer for inspection purpose.

Customer For the purpose of KYC Norms, a ‘Customer’ is defined as a person who is engaged in a financial transaction or activity with the Bank and includes a person on whose behalf the person who is engaged in the transaction or activity, is acting.

Person In terms of PML Act a ‘person’ includes: 

i. an individual, 

ii. a Hindu undivided family 

iii. a company 

iv. a firm

v. an association of persons or a body of individuals, whether incorporated or not

vi. every artificial juridical person, not falling within any one of the above persons (i to v), and 

vii. any agency, office or branch owned or controlled by any of the above persons (i to vi).

Transaction

 “Transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or the arrangement thereof and includes- 

a. opening of an account; 

b. deposits, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means; 

c. the use of a safety deposit box or any other form of safe deposit; 

d. entering into any fiduciary relationship; 

e. any payment made or received in whole or in part of any contractual or other legal obligation; or 

f. Establishing or creating a legal person or legal arrangement.

Central KYC Records Registry (CKYCR)

“Central KYC Records Registry” (CKYCR) means a central agency i.e. CERSAI to receive, store, safeguard and retrieve the KYC records in digital form of a customer.

Officially valid document (OVD)

 “Officially valid document” (OVD) means 

 The passport, 

 The driving license, 

 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 National Population Register containing details of name and address.

Suspicious transaction 

“Suspicious transaction” means a “transaction”, including an attempted transaction, whether or not made in cash, which, to a person acting in good faith,: a. gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the PML Act, regardless of the value involved; or b. appears to be made in circumstances of unusual or unjustified complexity; or c. appears to not have economic rationale or bona-fide purpose; or d. gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.

 Non-profit organizations (NPO):

 Non-profit organizations (NPO) means any entity or organization that is registered as a trust or a society under the Societies Registration Act, 1860 or any similar State legislation or a company registered under Section 8 of the Companies Act,2013.

Customer Due Diligence (CDD)

 “Customer Due Diligence (CDD)” means identifying and verifying the customer and the beneficial owner using ‘Officially Valid Documents’ as a ‘proof of identity’ and a ‘proof of address’.

 Regulated Entities (REs)

 “Regulated Entities” (REs) means 

a. All Scheduled Commercial Banks (SCBs)/ Regional Rural Banks (RRBs)/ Local Area Banks (LABs)/ All Primary (Urban) Co-operative Banks (UCBs) /State and Central Co-operative Banks (StCBs / CCBs) and any other entity which has been licensed under Section 22 of Banking Regulation Act, 1949, which as a group shall be referred as ‘banks’ 

b. All India Financial Institutions (AIFIs) 

c. All Non-Banking Finance Companies (NBFC)s, Miscellaneous Non-Banking Companies (MNBCs) and Residuary Non-Banking Companies (RNBCs). Page 12 of 108 

d. All Payment System Providers (PSPs)/ System Participants (SPs) and Prepaid Payment Instrument Issuers (PPI Issuers) e. All authorized persons (APs) including those who are agents of Money Transfer Service Scheme (MTSS), regulated by the Regulator

Customer Acceptance Policy (CAP)

Bank has framed clear customer acceptance policy and procedures, including description of the types of customers that are likely to pose a higher than average risk to the bank and included the following aspects of customer relationship:

 a. Bank will not open any account in anonymous or fictitious / benami name(s). [Bank will not allow the opening of or keep any anonymous account or accounts in fictitious name or account on behalf of other persons whose identity have not been disclosed or cannot be verified]. 

b. Bank has clearly defined parameters of risk perception to classify all customers into various Money Laundering Risk Categories (MLRC) viz. Low, Medium or High Risk at the time of the opening their accounts. For classifying customers into various Risk Categories, bank has considered following six parameters. 

1. Customer’s identity 

2. Social and financial status 

3. Nature of business activity 

4. Information about client’s business and their location, and 

5. Mode of payments 6. Annual Income / Turn Over of the customer

While considering customer’s identity, the ability to confirm identity documents through online or other services offered by issuing authorities should also be factored in. 

Customers requiring high level of monitoring, e.g. Politically Exposed Persons (PEPs) will, therefore, be considered for higher risk classification

The customer profile will mainly contain following information relating to customers’ Identity, 

a. Nationality / Country of domicile 

b. Date of birth, 

c. Social / Financial status, 

d. Anticipated / Actual Annual income, 

e. Anticipated / Actual Annual Turnover 

f. Nature of business activity, 

g. Information about his / her clients’ business and their location and 

h. Information about his / her employer and location etc.

. Bank has developed in-house utility for assigning Money Laundering Risk category (MLRC) to customers of branches by the system itself by taking into account four risk parameters such as 

(i) Country of domicile 

(ii) Annual Income / Turnover in the A/c and 

(iii) Type of product / service availed by the customer 

(iv) Customer Constitution/ Occupation with a view to avoid human intervention and to have uniformity in risk categorization

Review of Money Laundering Risk Category

Bank will ensure periodical review of Risk Categorization of accounts and the need for applying enhanced due diligence measures to meet with the Regulatory requirements. Such review of Risk Categorization of Customers will be carried out at a periodicity of not less than once in six months as directed by Reserve Bank of India. Bank will therefore review Risk Categorization in January and July every year.

Due Diligence in Customer Accounts Customer Due Diligence (CDD) can be defined as any measure undertaken to collect and verify information of identity proof and address proof to positively establish the identity of a customer. 

Types of CDD: There are three types of CDD that can be used by the bank in accordance with the risk category of the customer. These are listed as follows: 

a. Simplified Due Diligence: Any due diligence applied to establish the identity of customer, which involves measures less stringent than basic due diligence can be termed as 'Simplified Due Diligence'. 

b. Basic Due Diligence: This implies collection and verification of identity proof, address proof and photograph to establish the identity of the customer. 

c. Enhanced Due Diligence (EDD): Any additional due diligence measures undertaken over and above the basic due diligence can be termed as 'Enhanced Due Diligence'. As per the RBI guidelines, EDD needs to be undertaken for all the high-risk customers of a bank. Enhanced Due Diligence is also built in the account opening processes at the product level or customer type level, where the high risk customers are easily identifiable (e.g. NRIs, Trust accounts, Correspondent Banking). 

. Enhanced Due Diligence (EDD) is required in case of following types of High risk customers. 

a. Non-resident customers; 

b. High net worth individuals (HNI) 

c. Trusts, Charities, NGOs and organizations receiving donations; 

d. Companies having close family shareholding or beneficial ownership; 

e. Firms with 'sleeping partners'; 

f. Politically exposed persons (PEPs) of foreign origin / Resident outside India, customers who are close relatives of PEPs and accounts of which a PEP is the ultimate beneficial owner; 

g. Non-face to face customers; h. Those with dubious reputation as per public information available etc. 

i. Cash intensive businesses like Bullion dealers (including sub-dealers) & Jewellers; 

j. Fiduciary Accounts and 

k. Pooled Accounts