What is Know Your Customer (KYC)?

Know Your Customer (KYC) is a process that is widely used by banks. The banks use Know Your Customer (KYC) procedure in order to acquire information about their customers like details of the address and identity of the customers. Know Your Customer (KYC) is quite an essential procedure for banks as it helps in safeguarding the services of the banks and make sure that they are not being misused. Know Your Customer (KYC) procedure needs to be performed by the banks when they open new accounts for their customers. Also, periodic updates are also required.

The main objective behind introducing KYC/ CFT/ AML guidelines was to avoid the misuse of banks and financial institutions either intentionally or unintentionally. This misuse can be done by various criminal elements in order to contribute to terrorist activities or to launder money and hence it needs to be stopped. Know Your Customer (KYC) also ensures that banks and financial institutions possess the knowledge of the transactions and financial dealings of their customers which will help in the betterment and management of the risks.

Norms of Know Your Customer (KYC)

The banks and financial institutions are directed to go through some customer identification processes in order to open their accounts and to keep monitoring their transactions and if they find something suspicious, then they can report to the concerned authority. The Know Your Customer (KYC) guidelines can be revisited with reference to the recommendations made by the FATF (Financial Action Task Force) on the standards of (AML) Anti Money Laundering on CFT (Combating Financing of Terror).

The various Know Your Customer (KYC) norms for various types of accounts are listed below:

1. Proprietorship Bank account Opening
2. Partnership Bank Account Opening
3. Individual Bank Account Opening

The Know Your Customer (KYC) Policy

Every bank possesses the policy of  Know Your Customer (KYC). This Know Your Customer (KYC) policy is approved by the UCBs Board of Directors or by any other Board committee which has the relegated power.

Various Parts of Know Your Customer (KYC) Policy

There are four key constituents of Know Your Customer (KYC) policy. These are listed below:

1. Risk Management
2. Customer Acceptance Policy
3. Customer Identification Procedures (CIP)
4. Monitoring of Transactions

The Designated Director from the Board

A person who is proposed by the Board is known as a Designated Director. The designated director’s name, address and his designation are all communicated to the FIU-IND. Under no circumstances, the designated director can be a Principal Officer.

Principal Officer

The individual who is responsible to ensure the compliance ofc customers, monitor their transaction and share and report the information that is needed according to the laws and regulations. The Principal Officer’s name, address and designation will be communicated to the FIU-IND.

Compliance to Know Your Customer (KYC) Policy

The compliance of Know Your Customer (KYC) policy is safeguarded by the UCBs by:

• By defining who constitutes the “Senior Management” for KYC Compliance
• Allocating responsibility in order to effectively implement the procedures and policies
• Independent evaluation of the compliant function of the policies and procedures of the UCB with including the legal and regulatory necessities
• An internal audit in order to verify the compliance with the procedures and policies of AML and Know Your Customer (KYC)
• Submitting the audit notes and compliances on a quarterly basis to the Audit Committee

The Customer Acceptance Policy of UCB

The customer acceptance policy should be established by the UCBs in order to ensure the following:

• There is no account opening in a benami or anonymous or fictitious name
• NO account gets opened in case the RE is not able to apply adequate CDD measures either due to the non-credibility of the information that is provided by the customer or due to the non-compliance of the customer
• No account is opened or transaction performed without following the CDD process
• The essential details and information is  to be acquired for Know Your Customer (KYC) purposes at the time of opening of an account and its updation on periodic basis
• Additional information can be obtained by the consent of the customer after opening the account
• The CDD procedure can be applied to all the joint account holders at the time of opening an account
• An adequate system if placed in order to make sure that the identity of one customer does not get mixed up with another customer

Risk Management

The risk-based approach of the UCB includes the following:

• The customers will be classified as low, medium and high risk-category which will depend on their assessment and the perception of risk by the RE
• The categorisation of risk will be done on the basis of the parameters like the identity of the customer, the nature of the business, the social and financial status and the information of the business of the client and its location and many more

Conclusion

In the blog, we learnt about what Know Your Customer (KYC) is and its norms for various banks. We also learnt about the Know Your Customer (KYC) policy and the compliances and the risk factors associated with it and its management.