How to pass IIBF AML and KYC in First attempt ? Topic KYC or Know Your Customer

	INDEX: 1. KYC Definition and History 2. Elements of KYC Policy 3. Beneficial Owner 4. Valid documents for KYC 5. Document(s) Required to open various accounts 6. PEP or Politically Exposed Persons 7. Who is/are Designated director of Different entity
KYC Definition and History:  As per the Reserve Bank of India's guidelines, all financial institutions and other organizations have to verify identity and address of all customers who carry out financial transactions with them. The process of verification of the identity of the customers either before or at the time of the start of doing transactions with them is called KYC or Know Your Customer.
History of KYC or Customer Due Diligence: In 1990, among 40 recommendation of FATF one of main recommendation was Customer Due Diligence or KYC. BCBS (Basel Committee on Banking Supervision)* in the year 2001 published details guidelines about KYC(Know Your Customer).  * The Basel Committee on Banking Supervision (BCBS) is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1974.(Source: WIKIPEDIA)
Elements of KYC Policy: KYC policy has Four Main Key Elements- 1. CAP - Customer Acceptance Policy 2. CIP - Customer Identification Procedures 3. MT - Monitoring of Transaction 4. RM- Risk Management
CAP - Customer Acceptance Policy: -- KYC have the details guidelines about whom any financial institution do or don't make customer base relationship. As per PMLA rules under section 9(11) -  A) Bank Should not open or keep account- An anonymous account, An account in fictitious name or Benami account, an account on be half of other unidentified persons. B) Persons whose name appears in RBI sanction list. C) Persons whose name appears in negative list of FIU,RBI,CBI,ED,DRI,ECGC etc. D) Any entities appearing in the schedule to Unlawful Activity Prevention Act,1967.
As per definition Person means-  a) An Individual b) A HUF (Hindu Undivided Family) c) A company d) A firm e) An association of Persons or body of individual f) Every artificial juridical person g) Any agency, Office or branch owned or controlled by any of the above persons
Watch AML and KYC full Syllabus on Youtube in Hindi Click on the Link : Watch on YouTube
Beneficial Owner: The key individual (natural persons) connected with any banking transaction done by any entity is called beneficial owner. Main point about Beneficial owner: a) Beneficial owner must be Natural Person. b) Having ownership in the entity c) Enjoying benefit from the entity d) Having control over the entity e) If the entity ownership having so complex that no beneficial owner identifiable, then the natural person who holds the position of "senior managing official" is to be treated as beneficial owner of the entity. f) If any entity have Chain Ownership means it is impossible to find any natural ownership, bank should take special care to deal with this kind of entity.
Below Table shows the norms to find beneficial owner:
Entity Threshold limit (Ownership Holding /Share Holding) Company 25% Partnership Firm 15% Unincorporated Association or Body of Individual 15% Trust 15% If the company listed on stock exchange Not necessary to find Beneficial owner
Valid documents for KYC:. As per Rule no 9 of PML Rules - total 6 documents could be used for identity verification purpose. This 6 documents call OVD or Official Valid Documents. OVD's are- 1) Passport ( both Identity and Address proof) 2) PAN Card ( Only Identity proof) 3) Voter Card ( both Identity and Address proof) 4) NREGA Card or JOB Card (( both Identity and Address proof) 5) Driving License ( both Identity and Address proof) 6) Aadhaar Card / UIDAI ( both Identity and Address proof)
Simplified KYC: Government have simplified measures for Low risk customer who wants to open small account For Identity Purpose they can use: ID card issued by Central or State government department, Regulatory Authority, Public sector Undertakings, Scheduled Commercial Banks, Public Financial Institution, Letter issued by Gazetted officer with photograph duly attested by the person. For Address proof purpose: Bank or Post Office account, Utility bill (Electric, Gas, Water, telephone etc bills), Property Tax receipt, PPO, Letter issued by Foreign Embassy, Letter of Accommodation by Government or Undertaking or Listed Companies. E-KYC Aadhaar: e-KYC service of UIDAI is also accepted for KYC verification.
MT - Monitoring of Transaction Monitoring of Transaction type, amount, Nature of transaction are monitored by the financial institution for knowing the customer intention and depending on the transaction financial institution send report to Government Monitoring unit like FIU-IND and RBI. Report type- We already know the type of report from the AML KYC PART 2- CTR (Cash Transaction Report), STR (Suspicious Transaction Report), CCR (Counterfeit Currency Report),NTR ( Non Profit Organization Report),CBTR ( Cross Border Wire Transfer Report).
Methods of Monitoring: There are several method of monitoring the Transaction- In Branch Level its called "Observation Based" Monitoring- Customer's intention and nature is monitored by the branch staff and depend on the observation they can send Suspicious or other reports to the Monitoring Unit. In DIT or Core Banking System Level- The Transactions are monitored by the core banking system software and report generated according to the transaction. AML Software based monitoring- In current banking scenario huge number of customer and transaction happened every day, in this scenario separate dedicated software handles the reporting system, its called AML software.
RM- Risk Management: Risk Rating of Customers: As per ALM rules every financial institution followed three risk categorizations- a) Low Risk Customer- Salaried Persons, Pensioners., House Wife, Low Income Group people like Cobbler, plumbers etc. Financial Institution have to update KYC documents for Low risk customer at lest every Ten (10) Years. b) Medium Risk Customer- Tours and Travel companies, Real State Agents, Electronic goods and cloth merchants etc. Financial Institution have to update KYC documents for Medium risk customer at lest every Eight (8) Years.
c) High Risk Customer- Real State Developer, Diamond Merchants, Arms Dealer, Senior Controlling Officer, Lottery Agency, Importer and Exporter, Politically Exposed Persons, Non-Profit Organization etc. Financial Institution have to update KYC documents for High risk customer at lest every Two (2) Years.
Risk Rating of Product: a) Low Risk - Term Loan Against Assets, Fixed deposit, Small savings account, Consumer Loans, PMJDY Loan etc. b) Medium Risk- Credit Card, Demand Loan, Non-resident Fixed deposit etc. c) High Risk - Project Loan, Cash Credit loan, Diamond Dollar Account etc.
Risk Rating of Delivery channel: a) Low Risk – Branch b) Medium Risk- ATM c) High Risk - Net Banking, Mobile Banking and Phone Banking.
Action Taken against KYC NON-COMPLIANT CUSTOMERS:- 1. Due Notice for 3 Months for completion of KYC requirements to be given. 2. Due Notice for 3 Months for "Partial freezing of Account" to be given. 3. After 6 Month of Partial freezing - Make the account inoperative or total freezing
Document(s) Required to open following accounts: 1) Small Account: - It is for financial inclusion purpose. Person who have no OVD (Officially Valid document) they also can open account. Documents Required: a) Self Attested photograph, Signature or thumb print on account opening form in front of Designated official and the official have to certified that the person signed or thumb print affixed in his/her presence. b) Limitation of this account: He or She can only open Savings account. In a financial year he/ she can't transaction more than 1 lake. She/he can't withdrawal 10000(Ten Thousand) in a month including transfer. Balance in this account can't cross more than 50000(Fifty thousand) at any time and no FX transaction. c) Initially this account for 12 months and financial institution can extend it another 12 months, if with in this 24 month he/she unable to provide OVD then account will be closed.
2) Self Help Group:- As per relaxation given by the government only financial institution have to verify KYC of the Office Bearers. Documents Required: a) OVD of the office Bearers b) Resolution copies of the SHG Group regarding Account opening with the Bank.
3) Walking Customers:- Walking customer also have to submit KYC documents if the transaction amount is Fifty Thousand or more. If the transaction is below fifty thousand but the bank official suspects Suspicious about the transaction then he/she can ask KYC.
4) Foreign Student Account:- Documents Required: a) Passport, Letter of offering from the Indian Institution, Photograph and Local Address. b) Bank can give 30 days time to submit local address. c) Bank can open only NRO account ( Non-resident Ordinary) accounts in INR. d) Pakistani and Bangladeshi nationality need prior approval from RBI.
5) Companies (Juridical Persons):- Documents Required: a) Certificate of Incorporation b) Memorandum of Articles of Association c) Board Resolution d) Power of Attorney e) OVD of the Power of Attorney Holders
6) Association: Documents required: a) Resolution b) Power of Attorney c) OVD of Power of Attorney Holder 7) Trusts:Documents Required: a) Registration Certificate b) Trust deed c) Power of Attorney d) OVD of Power of Attorney holders 8) Proprietary Firms: Documents Required : a) Tread License issued by local authorities under Shop and Establishment act. b) IT return c) GST Registration d) OVD of the Proprietary
9) Partnership Firms: a) Registration certificate, b) Partnership Deed, c) Power of attorney, d) OVD of Power of attorney holder PEP: As per FATF definition - "PEPs are individuals who are or have been entrusted with prominent public functions by a foreign country, for example Heads of State or of government, senior politicians, senior government judicial or military officials, senior executives of state owned corporations, important political party officials".
Who is Designated director of Different entity? : a) Company- MD or whole time director b) Partnership Firm - Managing Partner c) Proprietorship Firm - Proprietor d) Trust - Managing Trustee e) An Association or Body of Individual - An Individual who Manages the entity.
AML AND KYC Part 1 AML AND KYC Part 2