KYC Norms and Anti Money Laundering

Money laundering has become a pertinent problem worldwide threatening the stability of various regions by actively supporting and strengthening terrorist networks and criminal organizations. The links between money laundering, organized crime, drug trafficking and terrorism pose a risk to financial institutions globally. 

The Reserve Bank of India (RBI) has instructed Regulated entities to follow ‘KYC Guidelines’, in terms of Prevention of Money Laundering Act 2002, wherein certain personal information of the customer is obtained. The objective of doing so is to enable the Regulated entities to have identification of its customers. This is also in the interest of customers to safeguard their hard earned money.

Money laundering refers to conversion of money illegally obtained to make it appear as if it originated from a legitimate source. Money laundering is being employed by launderers worldwide to conceal criminal activity associated with it such as drugs /arms trafficking, terrorism and extortion. Terrorist financing is the financing of terrorist acts, and of terrorists and terrorist organizations. Money launderers send illicit funds through legal channels in order to conceal their criminal origin while those who finance terrorism transfer funds that may be legal or illicit in original in such a way as to conceal their source and ultimate use, which is to support Terrorist financing.

A key defense against money laundering is to prevent accounts being opened in false identities. Anyone wishing to open an account will therefore be asked for latest photo, proof of their identity and current address. These documents have to be essentially obtained irrespective of the type of account to be opened and the purpose for which the account is opened for.

The fact that these documents are asked for opening of account does not mean that you are suspected of money laundering. Criminals try to appear to be normal law-abiding citizens, for example they may try to open a number of accounts using small amount of money. Hence it is necessary to identify all prospective account holders. Anybody including a criminal could falsely use your identity, if these identity documents are not obtained.   

KYC is an acronym for “Know your Customer” a term used for Customer identification process. It involves making reasonable efforts to determine, the 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.

Yes. It’s a regulatory and legal requirement.

Regulatory: In terms of the Master Direction - Know Your Customer (KYC) guidelines issued by the Reserve Bank of India (RBI) on 25^th February 2016 and as amended from time to time, all Regulated Entities are required to put in place a comprehensive policy framework covering KYC Standards and AML Measures.

Legal: The Prevention of Money Laundering Act, 2002 (PMLA) which came into force from 1^st July, 2005 (after “rules” under the Act were formulated and published in the Official Gazette) also requires Banks, Financial Institutions and Intermediaries to ensure that they follow certain minimum standard of KYC and AML as laid down in the ACT and the “rules” framed thereunder.  

As per RBI guidelines, all Regulated Entities are required to formulate a KYC Policy with the approval of their respective boards. The KYC Policy consists of the following four key elements.

• Customer Acceptance Policy
• Risk Management
• Customer Identification Procedures (CIP)
• Monitoring of Transactions

As per the Know Your Customer guidelines of the Reserve Bank of India, we need to periodically update customer details and obtain identification documents.

Any one of the following documents along-with a recent passport size photograph shall suffice for ID and Current residence address proof:

1. Passport (both sides)
2. Copy of masked Aadhaar/Virtual ID card (mask first 8-digits of Aadhaar Number)^
3. Voter ID Card (both sides)
4. Driving License* (both sides)
5. NREGA Card
6. Letter issued by the National Population Register containing details of name and address

(Note: ^ For seamless processing please visit https://ssup.uidai.gov.in/ssup/ to download your e-Aadhaar having the mandatory secure QR code for validation. Note, the file should not be password protected. So, take a clear photo of the e-Aadhaar copy and upload the same.

* For Driving Licenses issued in states where it is specifically mentioned that the document cannot be used as address proof the same will not be acceptable as an address proof KYC document.

For more KYC Information please click here

For the purpose of KYC policy a ‘customer” may be defined as:

• A person or entity that maintains an account and/or has a business relationship with SBICPSL;
• One on whose behalf the account is maintained (i.e. the beneficial owner);
• 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 high value demand draft as a single transaction.

Customer Acceptance Policy refers to the general guidelines followed by Regulated Entities in allowing customers to open accounts with them. Generally the guidelines stipulate that no accounts shall be opened in anonymous or fictitious names or when the identity of the customer matches with any person with known criminal background or banned entities. Similarly accounts should not be opened when the bank is unable to verify the identity and/or obtain documents required as per the policy.

Customer identification means identifying the customer and verifying his/her identity through reliable and independent documents, data and information. The Policy also elaborates the Customer Due Diligence (CDD) process to be undertaken by Regulated Entities to identify and verify the customer.

 * For Driving Licences issued in states where it is specifically mentioned that the document cannot be used as address proof, the same will not be acceptable as a KYC document.

**  For Aadhaar Card, please mask/black-out first 8-digits of your Aadhaar number. Only last four digits should be readable. You can also download the masked Aadhaar through official website: https://www.uidai.gov.in – by going on home page and clicking on ‘download Aadhaar’ filling the required details and selecting the option given as “Masked Aadhaar”.

Important points to remember:

• Documents should be valid on current date
• Each document should be self-attested

KYC will be carried out for the following but is not limited to:

• Opening a new account.(deposit/ borrowal)
• Opening a subsequent account where documents as per current KYC standards not submitted while opening the initial account.
• When the Company feels it is necessary to obtain additional information from existing customers based on the conduct of the account.
• After periodic intervals based on instructions received from RBI.
• When there are changes to signatories, mandate holders, beneficial owners, etc.

The Company will be entitled to refuse to open the account (if you are a prospective customer) or discontinue its relationship with you citing non-provision of KYC information/documents (if you are existing customer).