27/01/2015
KNOW YOUR CUSTOMER(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 unintentionallyby 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.
SOME FREQUENTLY ASKED QUESTIONS:
1. 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.
2. 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.
3. 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.
4. 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.
