Know your customer (KYC) policy is an important step developed globally to prevent identity theft, financial fraud, money laundering and terrorist financing. The objective of KYC is to enable banks to know and understand their customers better and help them manage their risks prudently.
The KYC benchmarks are set to prevent banks/ financial institutions from being used intentionally & unintentionally, by criminal elements for money laundering activities. Certain procedures also enable the banks/Financial Institutions to understand their customer in terms of their financial dealings and be judicious to manage their risks.
Banks usually frame their KYC policies by combining the following four key elements:
An effective KYC policy can help to prevent the following risks:
Objectives of KYC policy:
Individuals (other than High Net Worth) and entities whose identities and sources of wealth can be easily identified and transactions are monitored, may be categorized as low risk. The illustrative examples of low risk customers could be salaried employees whose salary structures are well defined, people belonging to lower trade and industry strata of the society whose accounts show small balances and low turnover, Government Departments and Government owned companies, regulators and statutory bodies etc. In such cases, only the basic requirements of verifying the identity and location of the customer shall be met.
Customers that are likely to pose a higher than average risk to the bank/FI may be categorized as medium or high risk depending on customer’s background, nature and location of activity, country of origin, sources of funds and his client profile etc such as:
The Banks/FI may apply enhanced due diligence measures based on the risk assessment, thereby requiring intensive ‘due diligence’ for higher risk customers, especially those for whom the sources of funds are not clear. The examples of customers requiring higher due diligence may include
a) Non Resident Customers,
b) High Net worth individuals
c) Trusts, charities, NGOs and organisation receiving donations,
d) Companies having close family shareholding or beneficial ownership
e) Firms with ‘sleeping partners’
f) Politically Exposed Persons (PEPs) of foreign origin
g) Non-face to face customers, and
h) Those with dubious reputation as per public information available, etc.
The persons requiring very high level of monitoring may be categorised as Level IV.
The Bank/ FI shall make necessary checks before the acquisition of a new client so as to ensure that the identity of the customer does not match with any person with known criminal background or with banned entities such as individual terrorists or terrorist organisations, etc.
Customer identification means identifying the person and verifying his/her identity by using reliable, independent source documents, data or information. One needs to obtain sufficient information necessary to establish, to their satisfaction, the identity of each new customer, whether regular or occasional, and the purpose of the intended nature. For customers that are natural persons, obtain sufficient identification data to verify the identity of the customer, his address/location, and also his recent photograph.
|DOCUMENTATION OF KYC
|ADDRESS PROOF (Residential)
|ADDRESS PROOF (Office/ Business)
|Registered Sales Deed / Rent Agreement
|Shop establishment certificate
|MOA & AOA
|Certificate of incorporation
|Election / Voter’s Card
|Election / Voter’s Card
|Identity card with applicant’s photograph issued by Central/State Government Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, and Public Financial Institutions
|Utility bill which is not more than 2 months old of any service provider (electricity, telephone/Internet, postpaid mobile phone, piped gas/ LPG book with latest receipt, water bill)
|TIN registration/ ST Registration
|Letter issued by a gazetted officer with a duly attested photograph of the person/Applicant
|Bank Account/ Post Office Saving Bank Account Statement/ Passbook , more than 6 months old.
|License Registration for CA’s/Lawyers/ Architects
Currently, KYC is a legal requirement in many sectors apart from Bank or Financial institutions such as mutual funds, Insurance , broking or commodity trading KYC is mandatory in order to verify the identity of the clients.
|PAN(Permanent account number)
|Pan No, DOB, Correct spelling of the name , Signature, Clear and visible Photograph, Issuance date
|Name, Address, DOB, Father / Spouse Name, Photograph , Issuance date
|Name, Father/ Spouse name/ License No, Issuance & Expiry Date, Signature,
|Name , Father/ Mother/ Spouse name, Address , Signature, DOB, Issuance & Expiry, Passport No.
|Any bill cannot be 3 months older from the present date
|Name, address, father/ spouse Name, Pan no
|Name, address, expiry date (it should be latest one)
|SHOP ESTD. CERTIFICATE
|Name of the Firm, Address of the Firm, validity date
|MOA & AOA
|Name of firm, date of incorporation, details of directors, CIN no., Address of firm
|BANK ACC PASSBOOK
|Name, address, account no, date of acc opening,
|Date of incorporation, share holding details, address of the firm, Name of the partners
|Company Name, Address, TIN No.
|SERVICE TAX NUMBER
|Company Name, Address, service tax no
First 3 letters represents any letter from A to Z.
4th letter represents the status of PAN Holder which can be any of the following :
The 5th character of the PAN is the first letter of the sir name of the person, entity, trust, society, organization etc.