RBI has been imposing heavy penalties on banks who have not complied or the account opened in contravention of various directions and instruction issued by it, which includes failure to obtain adequate documents for opening accounts, failure to carry out identification procedures, failure to examine control structure of entities.
The process of identification of person/s or natural person/s behind an entity before opening an account is guided by:
- Know Your Customer (KYC) norms
- Anti-Money Laundering (AML) standards
- combating of financial of terrorism
- Prevention of Money Laundering Act 2002.
Who does Bank treat as their customers?
The following types of persons/entity/beneficiaries are treated as customers of a Bank under KYC guidelines.
1. A person or an entity maintaining an account and or having business with any branches of the bank or
2. On whose behalf of the account is maintained (Beneficial Owner) at any branches of the bank or
3. The beneficiaries transactions conducted by professional intermediaries like stock brokers, Charted Accountants, official
4. liquidators, Solicitors etc., as permitted by the law. or
5. Any person or entity connected with a financial transaction, which can pose significant reputation or other risks to the bank like the issue of high-value demand draft as a single transaction.
The KYC guidelines have two core components:
- Address of the customers
In terms of KYC/AML guidelines, the bank should always hold the official valid documents (OVDs) like Aadhar card, Voter ID, PAN card, Driving License, Passport, NREGA Job card. If official valid documents (OVDs) submitted by the customer which contains both proofs of identity and proof of address then that single document itself is sufficient for proof of identity and proof of address.In case a customer categorised as low risk is unable to submit the KYC documents due to genuine reasons, she/he may submit the documents to the bank within a period of six months from the date of the opening account. In the case of a customer, categorised as ‘low risk’ by the banks, who does not have any of the ‘officially valid documents’ mentioned above, banks may still open his/her account by obtaining any one of the following documents:
(a.) 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;
(b.) The letter issued by a gazetted officer, with a duly attested photograph of the person.
(c) KYC verification of all the members of Self Help Groups (SHGs) is not required while opening the savings bank account of the SHG and KYC verification of only the officials of the SHGs would suffice. No separate KYC verification is needed at the time of credit linking the SHG.
(d) Foreign students have been allowed a time of one month for furnishing the proof of local address.
In addition to examining the OVDs of the new customers, banks have to carry out the ongoing due diligence of existing clients. This is to ensure that the transactions are consistent with the bank’s knowledge of the client, his business, the source of funds and risk profile.While identity/legal name remains the same, the principal place of business, mailing address, telephone, fax nos. e-mail address etc. may change. For this purpose of carrying out client due- diligence by the banks, it is obligatory on the part of existing customers of the bank to submit KYC documents to the bank at an interval of two/eight/ten years correspondingly in respect of high/medium/low-risk clients. The risk profile (high/medium/low) assignment is done by the bank at the time of opening of account based on rule specified under KYC/AML guidelines.
What happens if the existing customer does not revive the account?
As per extant regulations, if a customer is not submitting KYC documents to the bank at an interval of two/eight/ten years as the case may be despite repeated reminders of the bank, banks are free to impose ‘partial freezing’ of the account. Banks freeze the account in a phased manner, that is after giving due notice of three months initially to the customers to comply with KYC requirements and followed by a reminder for the further period of three months. In the meantime, the account holders can revive accounts by submitting the KYC documents as per instructions in force. Thereafter, banks may impose ‘partial freezing’ by allowing all credits and disallowing all the debit entries with the freedom to close the accounts. If the accounts are still KYC non-compliant after six months of imposing initial ‘partial freezing’ banks may disallow all debits and credits from/to the accounts, rendering them inoperative. Further, it would always be open to the bank to close the accounts of such customers.
As per RBI notification, the physical presence of the clients may, however, not be insisted upon at the time of such up periodic.
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