c



   () is the due diligence and bank regulation that financial institutions and other
regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing
financial business with them.

In order to prevent identity theft, identity fraud, money laundering, terrorist financing, etc, the RBI had directed all banks and

financial institutions to put in place a policy framework to know their customers before opening any account.

This involves verifying customers' identity and address by asking them to submit documents that are accepted as relevant proof.

Mandatory details required under KYC norms are proof of identity and proof of address. Passport, voter's ID card, PAN card or

driving license are accepted as proof of identity, and proof of residence can be a ration card, an electricity or telephone bill or a letter

from the employer or any recognised public authority certifying the address.

Some banks may even ask for verification by an existing account holder. Though the standard documents which are accepted as

proof of identity and residence remain the same across various banks, some deviations are permitted, which differ from bank to

bank.

So, all documents shall be checked against banks requirements to ascertain if those match or not before initiating an account

opening process with any bank. Thus opening a new bank account is no longer a cake walk.

Those are the basic requirements of KYC to identify a customer at the account opening stage.

In the USA, KYC is typically a policy implemented to conform to a customer identification program mandated under
the Bank Secrecy Act and USA PATRIOT Act. Know your customer policies are becoming increasingly important
globally to prevent identity theft fraud, money laundering and terrorist financing. In a simple form these rules may
equate to answering twelve questions, but this is the tip of the iceberg and regulators now expect much more.

One aspect of KYC checking is to verify that the customer is not on any list of known fraudsters, terrorists or money
launderers, such as the Office of Foreign Assets Control's Specially Designated Nationals list. This list contains
thousands of entries and is updated at least monthly. As well as sanctions lists there are lists of third party vendors
that track links between persons regarded as high-risk owing to negative reports in the media about them or in public
records.

Beyond name matching, a key aspect of KYC controls is to monitor transactions of a customer against their recorded
profile, history on the customers account(s) and with peers.

Banks doing KYC monitoring for anti-money laundering (AML) and checks relating to combating the financing of
terrorism (CFT) increasingly use specialised transaction monitoring software, particularly names analysis software
and trend monitoring software. The generated alerts identify unusual activity which is then subject to due
diligence or O
 OO O O (EDD) processes that use internal and external sources of information on the
subject, including the internet. This helps to determine whether a transaction or activity is suspicious and requires
reporting to the authorities.
Know Your Customer processes are also employed by regular companies of all sizes, for the purpose of ensuring
their proposed agents', consultants' or distributors' anti-briberycompliance. Banks, insurers and export credit agencies
are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their
probity and integrity.

 


To prevent the possible misuse of banking activities for anti-national or illegal activities, the RBI has given various directives to

banks:

Strengthening the banks' 'Internal Control System' by allocating duties and responsibilities clearly, and periodically monitoring them.

Before giving any finance at branch level, making sure that the person has no links with notified terrorist entities and reporting any

such 'suspect;' accounts to the government.

Regular 'Internal Audit' by internal and concurrent auditors to check if the KYC guidelines are being properly adhered to or not by

banks.

Most important, banks must keep an eye out for all banking transactions and identify suspicious ones. Such transactions will be

immediately reported to the bank's head office and authorities and norms shall also be laid down for freezing of such accounts.

ROLE OF RESERVE BANK OF INDIA. These were divided into four parts:

a 

 All banks shall develop criteria for accepting any person as their customer to restrict any
anonymous accounts and ensure documentation mentioned in KYC.

a 


 Customer to be identified not only while opening the account, but also at the time when
the bank has a doubt about his transactions.

a °





KYC can be effective by regular monitoring of transactions. Identifying an abnormal or unusual
transaction and keeping a watch on higher risk group of the account is essential in monitoring transactions.

a 



 This is about managing internal work to reduce the risk of any unwanted activity. Managing responsibilities,
duties and various audits plus regular employee training for KYC procedures.

These guidelines also specify that KYC should be implemented for existing account holders on the basis of materiality and risk

segments.


    !

Reserve Bank of India in the notification dated 18th February 2008, has reitrated that the
adoption of customer acceptance policy and its implementation should not result in denial of
banking services to general public, especially to those, who are financially or socially
disadvantaged.
RBI has further clarified that 'being satisfied' means that the bank must be able to satisfy the
competent authorities that due diligence was observed based on the risk profile of the customer
in compliance with the extant guidelines in place.

It is clarified that permanent correct address, means the address at which a person usually
resides and can be taken as the address as mentioned in a utility bill or any other document
accepted by the bank for verification of the address of the customer. It has been observed that
some close relatives, e.g. wife, son, daughter and parents etc. who live with their husband,
father/mother and son, as the case may be, are finding it difficult to open account in some banks
as the utility bills required for address verification are not in their name. It is clarified, that in such
cases, banks can obtain an identity document and a utility bill of the relative with whom the
prospective customer is living along with a declaration from the relative that the said person
(prospective customer) wanting to open an account is a relative and is staying with him/her.

banks have been further advised, that KYC/AML guidelines issued by Reserve Bank of India
shall also apply to their branches and majority owned subsidiaries located outside India,
especially, in countries which do not or insufficiently apply the FATF Recommendations, to the
extent local laws permit. It is further clarified that in case there is a variance in KYC/AML
standards prescribed by the Reserve Bank and the host country regulators, branches/overseas
subsidiaries of banks are required to adopt the more stringent regulation of the two.