KYC-Know your Customer
What is KYC?
KYC is an acronym for
“Know your Customer”, a term used for customer identification process. It
involves making reasonable efforts to determine true identity and beneficial
ownership of accounts, source of funds, the nature of customer’s business,
reasonableness of operations in the account in relation to the customer’s
business, etc which in turn helps the banks to manage their risks prudently.
The objective of the KYC guidelines is to prevent banks being used,
intentionally or unintentionally by criminal elements for money laundering.
KYC has two components -
Identity and Address. While identity remains the same, the address may change
and hence the banks are required to periodically update their records.
Legality of KYC
Reserve Bank of India
has issued guidelines to banks under Section 35A of the
Banking Regulation Act,
1949 and Rule 7 of Prevention of Money-Laundering (Maintenance of Records of
the Nature and Value of Transactions, the Procedure and Manner of Maintaining
and Time for Furnishing Information and Verification and Maintenance of Records
of the Identity of the Clients of the Banking Companies, Financial Institutions
and Intermediaries) Rules, 2005. Any contravention thereof or non-compliance
shall attract penalties under Banking Regulation Act.
KYC – where applicable?
KYC
is applicable to customers of the bank which includes:-
- a person or entity that maintains an account and/or has
a business relationship with the bank;
- one on whose behalf the account is maintained (i.e. the
beneficial owner);
- beneficiaries of transactions conducted by professional
intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors
etc. as permitted under the law, and
- any person or entity connected with a financial
transaction which can pose significant reputational or other risks to the
bank, say, a wire transfer or issue of a high value demand draft as a
single transaction.
Procedure for KYC
Customer identification
means identifying the customer and verifying his/her identity by using
reliable, independent source documents, data or information. Banks have been
advised to lay down Customer Identification Procedure to be carried out at
different stages i.e. while establishing a banking relationship; carrying out a
financial transaction or when the bank has a doubt about the authenticity/veracity
or the adequacy of the previously obtained customer identification data.
To ensure that the
latest details about the customer are available, banks have been advised to
periodically update the customer identification data based upon the risk
category of the customers.
There are two aspects of
Customer Identification. One is establishing identity and the other is
establishing present residential address.
Documents
required for KYC:
Accounts of
Individuals
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Legal name and any
other names used
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(i) Passport
(ii) PAN card (iii) Voter's Identity Card (iv) Driving licence (v) Identity card (subject to the bank's satisfaction) (vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank |
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Correct permanent
address
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(i) Telephone bill
(ii) Bank account statement (iii) Letter from any recognized public authority (iv) Electricity bill (v) Ration card (vi) Letter from employer (subject to satisfaction of the bank) (any one document which provides customer information to the satisfaction of the bank will suffice) |
Accounts of Companies
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Name of the company
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(i) Certificate of
incorporation and Memorandum & Articles of Association
(ii) Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account (iii) Power of Attorney granted to its managers, officers or employees to transact business on its behalf (iv) Copy of PAN allotment letter (v) Copy of the telephone bill |
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Principal place of
business
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Mailing address of the
company
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Telephone / Fax Number
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Accounts of
Partnership Firms
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Legal name
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(i) Registration
certificate, if registered
(ii) Partnership deed (iii) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf (iv) Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses (v) Telephone bill in the name of firm / partners |
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Address
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Names of all partners
and their addresses
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Telephone numbers of
the firm and partners
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Accounts of Trusts
& Foundations
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Names of trustees,
settlers, beneficiaries and signatories
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(i) Certificate of
registration, if registered
(ii) Power of Attorney granted to transact business on its behalf (iii) Any officially valid document to identify the trustees, settlors, beneficiaries and those holding Power of Attorney, founders / managers / directors and their addresses (iv) Resolution of the managing body of the foundation / association (v) Telephone bill |
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Names and addresses of
the
founder, the managers / directors and the beneficiaries |
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Telephone / fax
numbers
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Accounts of
Proprietorship Concerns
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Proof of the name,
address and activity of the concern
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* Registration
certificate (in the case of a registered concern)
* Certificate / licence issued by the Municipal authorities under Shop & Establishment Act, * Sales and income tax returns * CST / VAT certificate * Certificate / registration document issued by Sales Tax / Service Tax / Professional Tax authorities * Registration / licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority / Department. * IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT as an identity document for opening of bank account. * Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, etc. Any two of the above documents would suffice. These documents should be in the name of the proprietary concern. |
Caution:Where the bank is unable
to apply appropriate KYC measures due to non-furnishing of information and /or
non-cooperation by the customer, the bank can consider closing the account or
terminating the banking/business relationship after issuing due notice to the
customer explaining the reasons for taking such a decision.
With inputs from:RBI
