FINANCE SPECIAL...Why Banks Need to Follow KYC Rules?

Why Banks Need to Follow KYC Rules?

Money laundering by banks and insurance companies is more widespread than earlier thought, another expose by an online news website has revealed. This development is bound to force banks to undertake a fresh round of verification of the identity of almost all account holders, an exercise called ‘Know your Customer’. Anita Bhoir explains what a KYC entails:

WHAT IS KYC?

Banks undertake this exercise to verify the identity of their customers. The KYC exercise aims to prevent banks from being used, intentionally or unintentionally by criminal elements, for money laundering.

DOES KYC APPLY TO ALL CUSTOMERS?

Yes. KYC is applicable to every individual who wants to have any business relationship with the bank. This means, any individual wanting to open an account (savings or current account and recurring or fixed deposit), get a bank draft, open a locker, receive any benefits on account of financial transactions, remittance or wire transfer, and apply for a loan.

DOES IT HAVE ANY LEGAL BACKING?

Yes. The KYC norm has been validated under Section 35A of the Banking Regulation Act, 1949, and Rule 7 of the Prevention of Money-Laundering Rules, 2005. Any violation of these norms could attract severe penalty under the BR Act.

WHAT IS NEEDED FOR A KYC CHECK?

KYC has two components: identity and address. While PAN and voter card, driving licence and any other identity document that satisfies the banks requirements serve as proof of identity, a copy of passport, electricity or phone bill or bank account statement are accepted as proof of address.

DO BANKS OPEN ACCOUNTS FOR THOSE WITHOUT AN ADDRESS PROOF?

Yes. But such individuals have to submit an identity document along with a utility bill of the relative with whom the prospective customer is living and a declaration from the relative that the said person is a relative.

CAN KYC NORMS BE RELAXED?

To ensure financial inclusion, a low-income group customer without identity and address proofs can open a bank account with an introduction from another account holder who has fulfilled the bank’s KYC procedure. However, the balance in all his accounts taken together is not expected to exceed 50,000 and the total credit in all the accounts taken together is not expected to exceed 1 lakh. The introducer’s account with the bank should be at least six months old and should show satisfactory transactions.

IS KYC COMPLIANCE A ONE-TIME EXERCISE?

No. Banks can ask customers to re-submit fresh identification and address proof to update their records. They can also ask for additional documents if they have doubts about some transaction in order to prevent the account from being used for money laundering, terrorist or criminal activities.

HAVE BANKS BEEN PENALISED FOR KYC NORM VIOLATIONS?

Yes. The RBI has penalised HDFC Bank, ICICI Bank, Citibank and Standard Chartered Bank.

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