KYC NORMS: INTRODUCTION

KYC, short for, Know Your Customer is a framework for the banks which
allows them to know and understand their customers to further be able to
serve them better. Originally, the main aim of KYC was to curb money
laundering and terrorist financing. However, now its scope has widened. It
is now a milestone to avert monetary fraud, identity theft, etc. and help
the banks manage their risk wisely.
The purpose of KYC guidelines is to prevent banks from being used,
intentionally or inadvertently, by criminal elements for money laundering.
It involves making judicious efforts to establish the true identity of the
customer, source of capital, the nature of customers business,
reasonableness of operations in the account, etc.
KYC is a legal requirement, framed by respective banks incorporating the
essential elements as specified by the Reserve Bank of Indias directive.
The procedure of KYC involves identifying the customer and verifying such
identity by means of reliable and independent information. When opening
an account, Banks gather documents to identify and validate the
customer as required under the existing laws to show that it has
performed the existing KYC process.
KYC process has to be respected by every financial institution, especially
in the following instances

Opening of an account in the bank

Applying for a credit/debit card or advance
Opening a successive account
Opting a locker facility
In cases of change in signatories or beneficial titleholder, etc.
When the bank feels it essential to obtain additional information
from existing customers
While applying for mutual fund
Any other instances

The Reserve Bank of India has directed the banks that

1.
No account shall be opened in an anonymous or fictitious
(Benami) name
2.
No bank will open a new account or close an existing account if
the bank is not able to verify the identity of the customer or
obtain the requisite documents due to non-cooperation by
customer.

3.

All religious and non- religious trust accounts trust accounts will
also be subjected to KYC procedure.

If the bank is not capable of applying appropriate KYC measures because

of non-furnishing of information or non-cooperation by the customer, the
bank has a right to consider closing the account or ending the banking
relationship after issuing a notice to the customer stating reasons for such
an action.

KYC COMPLIANCE MEASURES

As per the RBI guidelines, following measures were taken for compliance
of the KYC norms

PUBLIC NOTICE: RBI published a general notice in the newspapers in

English and Hindi at the national level requesting the customers
notice to the need to comply with the KYC requirements. RBI also
published the notice in local newspapers of respective States. Banks
also displayed the Notice in the branch premises.

DETECTION OF KYC NON-COMPLIANT ACCOUNTS: The job of

identifying accounts needing KYC compliance shall be carried out by
the Zones on priority. In order to ensure diligent work, the scrutiny
of such accounts shall be done by officers appointed from a different
branch of the bank. Various documents are to be obtained for all
customers, i.e., individual, joint account holder, Partnership Firm,
Trust, and Hindu Undivided Family Member, etc.

NOTICE TO KYC NON-COMPLIANT CUSTOMERS: Once accounts are

recognized as KYC non-compliant and the nature of deficiency is
established, Bank shall send due notice to each such account holder
requesting submission of the requisite documents for fulfilment of
the KYC requirements. The customer maybe granted seven days
time for complying with the Banks request. In case the KYC norms
are not complied with, the customers accounts shall be frozen by
the bank.

FINAL PUBLIC NOTICE: Upon confirmation from all the Zones with
respect to completion of the KYC exercise, RBI shall publish a second
and final notice in the newspapers. The Notice shall grant a deadline

of seven days for compliance with the KYC documentation and notify
them that, in case of default, any and all transactions in their
accounts shall be ceased. Banks shall also display the notice in its
premises to draw the attention to this urgent matter.

FREEZING OF KYC NON-COMPLIANT ACCOUNTS: All KYC Non

compliant accounts shall be frozen.

ACTIVATION OF ACCOUNTS: All KYC non-compliant accounts shall

remain frozen until activated thereafter only upon fulfilment of KYC
procedures, with the sanction of the Branch Head.