RBI GUIDELINES UNDER ANTI-MONEY LAUNDERING PART 2
It is next extension of Notes on RBI Guidelines issued in view of anti-money laundering activities from our AML & KYC 2024 Notes.
IIBF Certification Course of Anti-Money Laundering & Know Your Customer 2024 exam & registration dates are due soon (Check out the latest prescribed dates here). Our focus here is to provide you with easy & understandable notes which can help you with remembering the Guidelines of RBI. You must notes that day by day revision of study is far better that trying to swallow the whole KYC AML study material in one day.
So, a lesion a day is good & much better to grab the knowledge on matters of money laundering activities. We will also talk about the latest available Study material / video classes on the paper on the Learning Sessions platform for Exams 2022.
Let us begin by recalling what we read in the part of the notes:
AML IN BANKING: Anti-Money Laundering Guidelines are rules, regulations & obligations made to detect & prevent money laundering and other financial crimes. Under AML Compliance Program for Banks, the following system has been devised.
- KYC in Banking
- CDD in Banking
- Screening of transactions
- AML audits
RBI GUIDELINES | PART 2
Under Reserve Bank of India’s regulatory guidelines we have till now discussed the purpose, applicability of these KYC, AML, CFT guidelines, the aim of the KYC/AML/CFT Directives, definition of customer & the we were on the general guidelines under KYC Policy:
CUSTOMER ACCEPTANCE POLICY (CAP)
Banks should prepare a profile for every new client based on risk categorization. A customer profile may contain information relating to the customer’s identity, social or financial status, information on the business of its clients and their location, nature of business activity, etc.
However, when preparing a customer profile, banks have to ensure that they only seek information that is relevant to the given risk category and isn’t intrusive. The customer profile is a confidential document and the details contained therein should not be disclosed for cross-selling or any other purpose.
PURPOSE OF RISK PROFILE:
For the purposes of risk categorization, individuals (other than having High Net-Worth) and entities whose identity and sources of wealth can be easily identified and transactions whose accounts largely fit a known profile may be categorized as low risk.
- Employees whose wage structure is well defined,
- people belonging to the lower economic strata of society whose accounts have small balances and low turnover,
- Govt. departments and government-owned companies,
- Regulatory and statutory bodies, etc.
In these cases the policy may require that only basic customer identity and location verification requirements be met.
Customers who are likely to pose a higher than average risk to the bank should be categorized as medium or high risk depending on the client’s background, nature and place of business, country of origin, sources of funds and profile of his client, etc. Banks should they should use enhanced due diligence measures based on risk assessment, which requires intensive due diligence on higher-risk clients, especially those with unclear sources of funds.
- Non-resident customers;
- High net worth individuals;
- Trusts, non-governmental organizations, charities, & organizations receiving donations;
- Companies that hold shares or beneficial ownership in a close family;
- Firms which with “sleeping partners”;
- Politically exposed persons (PEPs) of foreign origin;
- Those who, according to available public information, have a dubious reputation, etc.
NOT TO RESTRICTIVE:
It is important to keep in mind that the adoption of the client acceptance policy & its implementation should not be too restrictive and must not lead to the denial of banking services, especially, to those who are financially or socially disadvantaged.
CUSTOMER IDENTIFICATION PROCEDURE (CIP)
Client Identification Procedure
The policies approved by the Banking Board should clearly state the Client Identification Procedure (Customer identification means identifying the customer and verifying their identity using reliable, independent source documents, data or information) to be carried out at various stages:
- when establishing a banking relationship; execution of a financial transaction or
- if the bank has doubts about the authenticity/truthfulness or adequacy of previously obtained client identification data.
Banks need to obtain sufficient information necessary to ascertain to their satisfaction the identity of each new client, whether regular or occasional, and the purpose of the intended nature of the banking relationship.
To be satisfied means that the bank must be able to satisfy the relevant authorities that due diligence has been carried out in accordance with the applicable applicable guidelines (based on the client’s risk profile). Such a risk-based approach is considered necessary to avoid disproportionate costs for banks and a burdensome regime for customers.
In addition to risk perception, the nature of the information/documents required would also depend on the type of customer i.e. individual, business, etc.
For natural persons –
banks should obtain sufficient identification data to verify the identity of the client, their address/location, as well as their current photograph.
For legal persons or entities –
the bank should:
- verify the legal status of the legal person/entity through proper and relevant documents;
- verify that any person purporting to act on behalf of the legal person/entity is authorized to do so and identify and verify the identity of that person;
- understand the customer’s ownership and control structure and determine who are the individuals who ultimately control the entity.
Note: Banks may develop their own internal guidelines based on their experience in dealing with such persons/entities, common prudence of bankers and legal requirements as per established procedures. If the Bank decides to accept such accounts in accordance with the Client Acceptance Policy, it should take reasonable steps to identify & verify the beneficial owner/s.
It has been observed that some close relatives like wife, son, daughter and parents etc. – living with their husband, father/mother and son as the case may be, are facing difficulty in opening an account because utility bills required for verification addresses are not in their name.
It is clarified that in such cases, banks may obtain the identity document and utility bill of the relative with whom the prospective customer lives, along with a declaration by the relative that the said person, who wants to open the account, is a relative and lives with him. Banks can use any additional proof such as letter delivered by post for further address verification.
- Banks should implement a system of periodic updating of the client’s identification data (including photos) after his or her account has been opened. The frequency of such update:
- should not be < once every 5 years in the case of low risk category customers and
- should not be < once every 2 years in the case it falls under high and medium risk categories.
- An indicative list of the nature and type of documents/information to be relied upon for customer identification is also given, in which, for clarity purpose – correct permanent address means the address where the person usually stays and may be taken as the address mentioned in the utility bill or any other document accepted by the bank for verifying the address of the customer.
- The indicative list given is not to be considered an exhaustive & should not be used to deny access to banking services to a section of the public. Banks are therefore, always advised to review their existing internal guidelines in this regard.
So, this is not it… we will further continue with guidelines in our next set of AML-KYC – Guidelines of RBI for the latest Exams 2022 on Monitoring of Transactions and Risk Management. You can also check out our other AML articles, here: Learning Sessions
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