KYC & Anti-Money Laundering Measures in Bank – Notes

KYC & Anti-Money Laundering Measures in Bank GK + Notes: KYC stands for “Know Your Customer,” and it refers to insurance companies, banks, and other institutions verifying the address and identity of all clients and customers before doing any transactions with them.

Before opening a new deposit account or granting a loan, banks must adhere to the RBI’s Know Your Customer (KYC) Policy and procedures.

Objectives of KYC:

The RBI’s Know Your Customer (KYC) policy has the following objectives:

1. Prevent banks from being utilized as a conduit for financial fraud and money laundering by criminals.
2. Help bank staff better understand their customers and their financial transactions, as well as how to manage any associated risk.
3. To improve client identification and account monitoring.

Banks follow the RBI’s Customer Identification and Account Monitoring policies when performing KYC procedures.

What is Anti-Money Laundering Measure?

According to Section 3 of the Prevention of Money Laundering Act of 2002, “Whoever directly or indirectly attempts to engage in, knowingly assists, knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition, or use, and projecting or claiming it as untainted property” is guilty of money laundering.

What is the purpose of money laundering?

People launder money for a number of reasons. These are some of them:

1. Hiding assets: criminals can conceal illegally earned wealth in order to escape authorities seizing it;
2. Avoiding prosecution: Criminals might avoid being prosecuted by keeping their distance from illegal funds.
3. Tax evasion: Criminals might avoid paying taxes on the funds’ earnings.
4. Boosting profits: criminals can boost their earnings by reinvesting unlawful funds in enterprises.
5. Obtaining legitimacy: Criminals might utilise the laundered monies to establish a business and give it legitimacy.

Banks’ Due Diligence:

Customer Acceptance:

• Every person or legal entity opening a bank account must be properly introduced to the bank since the Negotiable Instruments Act provides legal protection.
• The person who is opening an account with the bank must present proper documentation relating to evidence of identity as well as a residence address that is acceptable to the bank.
• Each new consumer must be assigned to one of three risk categories: low, medium, or high.
• Low-risk customers are individuals whose names and sources of funds are easily discernible, and whose transactions match the Bank’s profile.
• Clients who get a salary, belong to a low-income category, work for the government, and so on are examples of low-risk customers.
• Non-resident clients, High net worth people, trusts, Charities, NGOs, and organizations receiving donations, among others, are categorized as High-risk customers.
• Those who do not fall into either the low or high-risk categories are categorized as medium risk.

Customer Identification Procedure (CIP) :

• Customer identification is the process of confirming a customer’s identity by the use of a trustworthy, independent source of documents, data, or information.
• Accepting accounts from legal people or companies requires greater caution on the part of banks. To verify the validity, the legal status of the person/entity is verified using suitable and necessary papers.
• The required documentation to be requested from various consumers has been defined by the RBI.

Monitoring of Transactions:

• KYC measures include transaction monitoring on a regular basis. This is done to keep the danger under control and minimize it.
• The level of monitoring will be determined by the account’s risk categorization.
• All significant and unexpected transactions, as well as excessive account turnover that does not match the customer’s profile, are tracked.
• KYC rules, according to RBI policy, apply to all current customers who had accounts prior to the implementation of these standards.
• The bank may refuse to open accounts if a consumer fails to provide the required information.
• According to RBI policy, every bank must select a Principal Officer to oversee and report all transactions, as well as share information as necessary by law with the Financial Intelligence Unit of India (FIU-IND), the Indian institution that oversees such activities.

Monitoring and reporting suspicious activities:

Banks provide periodic returns to FIU-IND as part of the surveillance, including Cash Transaction Reports (CTR), Suspicious Transaction Reports (STR), Counterfeit Currency Reports (CCR), and Non-Governmental Organization Transaction Reports (NTR).

Maintenance and reports of Records

• Records of transactions to be maintained.
• Information in the records
• Procedure and manner of maintaining information
• Cash Transaction reports (CTRs)
• Suspicious Transaction Reports (STRs)
• Counterfeit Currency Reports (CCRs)
• Non Profit Organisation Transaction reports (NTRs)