KYC /AML / CFT Policy KYC / AML / CFT Policy of the Bank for

Transcription

1 KYC / AML / CFT Policy of the Bank for Preamble As per Reserve Bank of India guidelines, Banks have to ensure that a proper policy framework on Know Your Customer and Anti-Money Laundering measures is formulated, with the approval of the Board and put in place. These guidelines to Banks are incorporated in the RBI Master Circulars issued and updated every year. In recent years there had been a number of developments in Anti-Money Laundering (AML) / Combating of Financing of Terrorism (CFT) Standards and Practices in India such as enactment of Prevention of Money Laundering Act (PMLA) with effect from 1st July 2005 and establishment of Financial Intelligence Unit India (FIU-Ind), as the nodal agency for investigation of and prosecution for money-laundering offences. With India becoming a member of Financial Action Task Force (FATF), effective June 2010, a new requirement has been enjoined on us to revisit the KYC / AML Standards, so as to align our Banking Law & Practice in tune with global industry standards and the recommendations given by FATF. Besides IBA has been issuing guidance / explanatory notes to Banks that could serve as a reference document on all KYC / AML / CFT issues Our Bank s KYC / AML / CFT Policy for has been framed taking into account the guidelines and suggestions given by the Regulator / Govt and other agencies as mentioned above. 1.1 Purpose: The Policy Document on KYC / AML / CFT Standards has been prepared based on guidelines / instructions given by RBI / IBA & FIU IND from time to time and with a view to consolidate and provide a broad framework of guidelines to be adopted by our Bank. Besides, it is also aimed at creating awareness amongst the staff members regarding the various anti-money laundering provisions of PMLA 2002 and the obligations on the Bank under the said provisions. This will facilitate a better understanding of the regulatory and statutory perspectives, on KYC / AML Standards and Practices, to be followed in the Bank and the need to adopt a watchful and vigilant attitude against money laundering through banking channels. 1

2 1.2 Introduction : KYC /AML / CFT Policy Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT)/Obligations of Banks under PMLA, 2002 The objective of KYC / AML /CFT guidelines is to prevent Banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities & to enable banks to know / understand their customers and their financial dealings better which in turn help them manage their risks prudently The offence of Money Laundering has been defined in Section 3 of the Prevention of Money Laundering Act (PMLA) Money Laundering can be called a process by which money or other assets obtained as proceeds of crime are exchanged for "clean money" or other assets with no obvious link to their criminal origins. There are three stages of money laundering during which there may be numerous transactions made, that could alert the Bank to the underlying criminal activity:- Placement - the physical disposal of cash proceeds derived from illegal activity. Layering - separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity. Integration - the provision of apparent legitimacy to criminally derived wealth. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing to be normal business funds Definition of Customer For the purpose of KYC policy, a Customer is defined as : i. a person or entity that maintains an account and/or has a business relationship with the Bank; ii. iii. iv. 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 Banks, say, a wire transfer or issue of a high value demand draft as a single transaction 2

3 v. a walk-in customer, where the amount of transaction is equal to or exceeds rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected ( Beneficial Owner -- Rule 9, sub-rule (1A) of PMLA Rules define Beneficial Owner as a natural person who ultimately owns or controls a client and / or the person on whose behalf a transaction is being conducted, and includes a person who exercise ultimate effective control over a juridical person (A juridical person means one who is not a natural person but recognised as a person in law like a Limited Company) HO:AML Cell Circular No GENL:27/ , dt ) 2. Guidelines 2.1 General i) The information collected from the customer, for the purpose of opening of account should be treated as confidential by the Branches and details thereof are not to be divulged for cross selling or any other like purposes. Hence Branches should ensure that information sought from the customer is relevant to the perceived risk and in conformity with the guidelines issued in this regard and is not intrusive. Any other information from the customer should be sought separately with his / her consent and after opening the account. ii) iii) Branches should effect any remittance of funds -- by way of demand draft/ mail / telegraphic transfer/ travellers cheques or any other mode -- for value of Rupees fifty thousand and above only by debit, to the customer s account or against cheques and not against cash payment. Branches should strictly adhere to the provisions of the Foreign Contribution (Regulation) Act, 1976 as amended from time to time, wherever applicable. 2.2 KYC Policy The KYC policy of our bank incorporates the following four key elements: a) Customer Acceptance Policy b) Customer Identification Procedures c) Monitoring of Transactions & d) Risk Management. 3

4 3. Customer Acceptance Policy (CAP) The Customer Acceptance Policy of the Bank lays down explicit criteria for acceptance of customers, with regard to the following aspects of customer relationship in the Bank and the same, should be strictly ensured by the Branches: i. No account is opened (or kept) in anonymous or fictitious / benami name(s), where customer identity has not been disclosed or cannot be verified ii. Customer Risk Profiling is to be done and customers are to be categorized into low, medium and high risk based on defined parameters of risk perception as briefly outlined below: Type of product / service availed by the customer Country where the customer is domiciled / location of his clients Customer Type (Constitution) & nature of business / activity The Turn Over or Annual Income of the customer Social and financial status of the customer iii. iv. The Highest of the Risk Categorization arrived, based on the above has to be assigned to the Customer. Branches may please refer to Annexure 2B, in this regard Documentation and / or other information requirements are to be collected in respect of different categories of customers, depending on perceived risk and keeping in mind the requirements of PML Act, 2002 and instructions / guidelines issued by Reserve Bank of India from time to time. Branches are advised not to open an account or close an existing account where the bank is unable to apply appropriate customer due diligence measures -- i.e. in instances, where, due to non cooperation of the customer or non reliability of the data / information furnished, the bank is unable to verify the identity of the client or obtain the documents required as per the risk categorization. However with a view to avoid harassment to the customer, the decision to close an account should be taken at the level of the Zonal Manager, after giving due notice to the customer explaining the reasons for such a decision. v. The decision to open an account for Politically Exposed Persons (PEP) and / or the family members / close relatives of PEPs should be taken by the Zonal Manager. Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government / judicial / military officers, senior executives of state-owned corporations, important political party officials etc. In case an existing customer or beneficial owner of an existing account subsequently becomes a PEP, Branch should obtain the approval of the respective Zonal Manager to continue the business relationship and subject the account to Enhanced Customer Due Diligence (EDD) measures. 4

5 vi. vii. KYC /AML / CFT Policy Circumstances, in which a customer is permitted to act on behalf of another person / entity, must be in conformity with the established law and practice of banking as there could be occasions when an account is operated by a mandate holder or where an account is opened by an intermediary in fiduciary capacity. ( Branches are advised to be guided by instructions given in Deposits Manual 2006 (Chapter 2, Para 9) Before opening a new account branches should 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. 3.1 Customer Risk Categorisation (C R C ) -- Parameters of Risk Perception 'Customer risk ' in the present context refers to the money laundering and terrorist funding risk associated with a particular customer from a bank's perspective. This risk is based on the risk perceptions associated with the parameters comprising a customer's profile, and the level of risk associated with the product and channels being used by him High Risk Customers that are likely to pose a higher than average risk to the bank may be categorized as High Risk or Medium Risk depending on customer's background, nature and location of activity, country of origin, sources of funds income / turnover levels and his client profile etc. The indicative list of customers in High Risk Category requiring higher due diligence include (a) Politically Exposed Persons (PEPs) of foreign origin, customers who are close relatives of PEPs and accounts in which a PEP is the ultimate beneficial owner (b) Non-resident customers / foreigners based in high risk countries / jurisdictions or locations (c) high net worth individuals (d) Private trusts, charities, unregulated clubs / organizations & NGOs receiving donations (excluding NPOs / NGOs promoted by United Nations or its agencies) (e) companies having close family shareholding or beneficial ownership / firms with 'sleeping partners' (f) non-face to face customers (g) those with dubious reputation as per public information available (h) Customers engaged as Dealers in Art / Antique Goods, Bullion, Jewellery & Precious Metals, Arms / Ammunition & Real Estate (i) Multi level marketing companies & Money Services Bureau etc. (Pl refer Annexure 2 - A 1 for the list) Banks are required to apply enhanced due diligence measures for high risk customers, especially those for whom the sources of funds are not clear and obtain information on the customer beyond documentary evidence such as information on net worth, intended business activity in case of NRI customers etc. Besides obtaining higher level of approvals for opening such accounts, Banks are also required to take up verification of customer information with independent data sources Medium Risk Examples of customers in Medium Risk Category include (a) Non-resident customers / foreigners based in other than high risk countries / jurisdictions or locations (b) Public Trusts (c) Providers of telecommunications service, internet café, IDD call service, phone cards, phone center (d) Travel agency etc 5

6 ** Indicative list of High / Medium Risk Customers / Products & Services as per guidelines given by IBA Working Group is given in Annexure 2 A Low Risk Customers -- individuals and entities -- whose identities and sources of wealth can be easily identified and transactions in whose accounts by and large conform to the known profile may be categorized as low risk. Illustrative examples of low risk customers could be salaried employees / Pensioners whose salary structures are well defined, people belonging to lower economic strata of the society whose accounts show small balances and low turnover, Government departments & Government owned companies, regulators and statutory bodies etc. In Low Risk Accounts, it is advised that only the basic requirements of verifying the identity and location of the customer are to be met. All borrowal customers where due diligence is done at the time of granting the facilities will also fall under the low risk category except borrowal accounts having dealings with High / Medium risk countries which need to be classified accordingly Turnover / Income Criteria for Customer Risk Categorisation Besides the above parameters for Risk Categorisation ( viz. Contitution / Domicile of the Customer / Product / Services availed ), the Credit Summations (Turnover) in the Account in a year representing the Gross Income / Turnover of the constituent has been adopted as one of the criteria for customer Risk Categorisation. Customers, in whose account the aggregate credits to the account fall within the range as specified hereunder, are to be classified accordingly: Customer Type / Constitution Individuals Clubs & Associations Sole Proprietary concerns Annual High Risk -- Income/ Above Rs.50 lakhs Above Rs. 5 Crores Medium Risk -- Annual Income/ Above Rs.10 lakhs & below Rs.50 lakhs Above Rs. 1 Crore & below Rs.5 Crores Low Risk -- Annual Income/ Upto and inclusive of Rs.10 lakhs Upto and inclusive of Rs. 1 Crore Above Rs. 5 Crores Upto and inclusive Partnership firms Above Rs.10 Crores & below Rs.10 of Rs.5 Crores Crores Limited Cos. Above Rs.10 Crores Upto and inclusive Above Rs.50 Crores (Public & private) & below Rs.50 of Rs.10 Crores Crores Trusts (Private Trusts) High Risk: All accounts irrespective of their income / receipts / turn over Trusts (Public Trusts) Medium Risk: All accounts irrespective of their income / receipts / turn over 6

7 4. Customer Identification Procedures a) Customer identification means identifying the customer and verifying his / her identity by using reliable, independent source documents, data or information. Branches need 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 of Bank relationship. Being satisfied means that the Branch must be able to satisfy the competent authorities that due diligence was observed based on the risk profile of the customer in compliance with the extant guidelines in place. Such risk based approach is considered necessary to avoid disproportionate cost to Bank and a burdensome regime for the customers. b) Due Diligence can be defined as any measure undertaken by the Bank to collect and verify information and postitively establish the identity of a customer. While Basic Due Diligence Measures may be adequate for low risk customers, Additional / Enhanced Due Diligence Measures are required to be taken for all the High / Medium Risk customers of a bank by way of obtaining additional documents at the time of account opening as well as enhanced levels of transaction monitoring in the account subsequently. c) Customer Identification Procedures are to be carried out at the following stages: while establishing a banking relationship while carrying out a financial transaction of an amount equal to or exceeding Rs whether conducted as a single transaction or several transaction that appear to be connected any international money transfer operations & when the bank has a doubt about the authenticity / veracity or the adequacy of the previously obtained customer identification data. d) Besides risk perception, the nature of information / documents required would also depend on the type of customer (individual, corporate etc.). For customers that are natural persons, the banks should obtain sufficient identification data to verify the identity of the customer, his address / location, and also his recent photograph. For customers that are legal persons or entities, the bank should (i) verify the legal status of the legal person / entity through proper and relevant documents; (ii) verify that any person purporting to act on behalf of the legal person / entity is so authorised and identify and verify the identity of that person; (iii) understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person. 7

8 e} However with a view to avoid undue hardships to individuals who are,otherwise, classified as low risk customers who live with their relatives, (e.g. wife, son, daughter and parents etc. who live with their husband, father / mother and son) Branches can obtain 1) an identity document and 2) a utility bill of the relative with whom the prospective customer is living along with a declaration from the relative that the said person (prospective customer) wanting to open an account is a relative and is staying with him / her. Branches can use any supplementary evidence such as a letter received through post for further verification of the address. Customer identification requirements in respect of a few typical cases requiring an extra element of caution are given herein below. (Refer Para 4.3) 4.1 Customer Identification for Low Risk Customers In respect of Savings Bank and Term Deposits accounts of individuals under low risk category, branches shall be required to verify only the identity and location of the customer. For these customers, the following documents may be accepted for identification and location: A. Passport alone where the address on the passport is the same as the address given for account opening B. Any one document from each of the below 2 lists, for a photo identity and a proof of residence/address: List I ( latest / recent) for Legal Name List II ( latest / recent) for correct and any other name(s) used permanent address 1. Passport where the address differs 1. Telephone Bill 2. Voter s Identity Card 2. Bank account statement 3. PAN Card 3. Income/Wealth tax assessment order 4. Driving Licence 4. Credit Card Statement 5. Govt. / Defence ID card * 5. Electricity Bill 6. ID cards of reputed employers * 6. Ration Card 7. Letter from a recognized public authority or public servant verifying the identity and residence of the customer * 8. Letter issued by UIDAI containing details of name, address and Aadhaar number * subject to the Bank s satisfaction. 7. Letter from employer * 8. Postal Identity Card issued under the signature of the Post Master. Note: Original should be produced for verification and copy, duly attested by the official concerned after due verification regarding validity etc. should be kept along with the account opening form or 8

9 4.1.2 The documents listed above are based on the list provided by RBI. Addition / Deletion / Modification to the list may be made depending on subsequent developments When the aforesaid documents are accepted as the basis for opening the Savings Bank or a Term Deposit account in the name of the holder of such document(s), the officer authorising the opening of such account must i. verify that the documents are prima facie in order and valid ii. iii. iv. ensure that the signature of the applicant and other particulars given in the application form are tallying with the signature and other particulars recorded in the Identity Documents and appearance of the applicant broadly matches with the photograph on the Idnetity Documents note all the relevant particulars such as reference number, authority, date and place of issue, etc. as given in the passport, voter s identity card, driving licence, etc., in the account opening form. authenticate the photocopies of the documents and keep the records along with the account opening form & certify the documents with reference to the originals v. incorporate the data in CBS appropriately & validate the ids with tools available in CBS In case of joint account, applicants who are not close relatives are required to independently establish their identity and address Incomplete address or address ending with Care of. should not be accepted without due enquiry. 4.2 Customer Identification for Medium / High Risk Customers In respect of medium/high risk customers, branches shall call for additional information and documentary evidence, (besides the normal documents prescribed in para B above) which may include the following: Type of Customers/accounts Additional Information/Documents 1. For opening Non Resident accounts Introduction in the form of passport and/or by another Bank/Indian Embassy/ Notary Public/ Person known to the account opening branch 2. For opening accounts of other than NRIs under Medium and High Risk 3. For current accounts in all risk categories 4. For accounts of other than individuals in all risk categories Introduction by an existing account holder or by a person known to the branch 9

10 4.2.2 For customers that are legal persons or entities (i.e., other than individuals), branches should i. verify the legal status of the legal person/entity through proper and relevant documents ii. iii. verify that any person(s) purporting to act on behalf of the legal person/entity is duly authorized and such person(s) is/are properly identified by calling for documents (as listed above for individual low risk customers) and verify the identity of that person(s) understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person Customer Identification Requirements Indicative Guidelines for certain specific Customer Types: Trust/Nominee or Fiduciary Accounts There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer identification procedures. Branches should determine whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, Branches should insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also obtain details of the nature of the trust or other arrangements in place. While opening an account for a trust, Branches should take reasonable precautions to verify the identity of the trustees and the settlors of trust (including any person settling assets into the trust), grantors, protectors, beneficiaries and signatories. Beneficiaries should be identified when they are defined. In the case of a 'foundation', steps should be taken to verify the founder managers/ directors and the beneficiaries, if defined Accounts of salaried employees (HO:Ins Dept Cir No.Admin.44 / dt ) Branches shall open accounts of salaried employees on production of certificates issued only from corporates and other entities of repute by the competent authority designated by the concerned employer to issue such certificate / letter. In addition to the above, branches should insist on at least one of the officially valid documents as given in Para B above Accounts of companies and firms Branches need to be vigilant against business entities being used by individuals as a front for maintaining accounts with the Bank. Branches should examine its control structure, determine the source of funds and identify the natural persons who have a controlling interest and who comprise the management. These requirements may be moderated according to the risk perception e.g. in the case of a public company it will not be necessary to identify all the shareholders. 10

11 Certain firms posing as Multi Level Marketing (MLM) agencies for consumer goods and services have been mobilizing large deposits from the public (with promise of high return) by opening accounts at various bank branches. These funds running into crores of rupees were being pooled at the principal accounts of the MLM Firms and were eventually flowing out of the accounts for purpose appearing illegal or highly risky. Accordingly, while opening agency accounts in the name of a proprietary concern the following documents need to be obtained and verified. Identity as also the address proof of the proprietor, such as passport, PAN card, Voter ID card, Driving Licence, Ration Card with photo, etc. any one of the document is obtained. Proof of the name, address and activity of the concern, like registration certificate(in the case of a registered concern)), certificate / licence issued by the Municipal authorities under Shop and Establishment act, sales and income tax returns, CST / VAT certificate, Licence issued by the registering authority like Certificate of Practice issued by the Institute of Chartered Accountants of India, Institute of Companies Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, any certificate / registration document issued by Sales Tax / Service Tax / Professional Tax authorities, etc. -- any two of the documents should be obtained. These documents should be in the name of the proprietary concern Client accounts opened by professional intermediaries a. When the Branch has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client must be identified. Branches may hold 'pooled' accounts managed by i) professional intermediaries on behalf of entities like mutual funds, pension funds / other types of funds and ii) managed by lawyers / chartered accountants or stockbrokers for funds held 'on deposit' or 'in escrow' for a range of clients. Where funds held by the intermediaries are not co-mingled at the Branches and there are 'sub-accounts', each of them attributable to a beneficial owner, all the beneficial owners must be identified. Where such funds are co-mingled at the Branches, the Branches should still look through to the beneficial owners. Where the Branches rely on the 'customer due diligence' (CDD) done by an intermediary, they should satisfy themselves that the intermediary is regulated and supervised and has adequate systems in place to comply with the KYC requirements. It should be noted that the ultimate responsibility for knowing the customer lies with the Branches. b. Branches should not allow opening and / or holding of an account on behalf of client/s by professional intermediaries, like Lawyers and Chartered 11

12 Accountants etc., who are unable to disclose true identity of the owner of the account / funds due to any professional obligation of the customer confidentiality Accounts of Politically Exposed Persons (PEPs) resident outside India a. Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. Persons of foreign origin / diplomatic missions, such as the one listed above, located in India and Persons holding prominent position in multilateral agencies such as United Nations, World Bank, etc., can also be construed as PEPs. b. PEPs are to be classified as High Risk Customers by the Bank. c. Branches should gather sufficient information on any person/customer of this category intending to establish a relationship and check all the information available on the person in the public domain. Branches should verify the identity of the person and seek information about the sources of funds before accepting the PEP as a customer. d. The decision to open an account for a PEP should be taken by the Zonal Manager. In the event of an existing customer or beneficial owner of an existing account, subsequently becoming a PEP, branch should obtain the approval of the respective Zonal Manager to continue the business relationship and subject the account to the Enhanced Due Diligence measures. e. Branches should also subject such accounts, including those where PEP is the beneficial owner, to enhanced monitoring on ongoing basis. The above norms may also be applied to the accounts of the family members or close relatives of PEPs Accounts of non-face-to-face customers With the introduction of telephone and electronic Banking, increasingly accounts are being opened by Banks for customers without the need for the customer to visit the branches. In the case of non-face-to-face customers, branches shall apply the usual customer identification procedures, to mitigate the higher risk involved. Certification of all the documents presented should be insisted upon and, if necessary, additional documents may be called for. In such cases, Branches may also require the first payment to be effected through the customer's account with another Bank which, in turn, adheres to 12

13 similar KYC standards. In the case of cross-border customers, there is the additional difficulty of matching the customer with the documentation and the Branches may have to rely on third party certification/introduction. In such cases, it must be ensured that the third party is a regulated and supervised entity and has adequate KYC systems in place Small Deposit Accounts (i) With a view to mitigate the difficulties faced by Low income group both in urban and rural areas in producing the required identification Documents, simplified KYC procedures have been prescribed for opening accounts for those persons who intend to keep balances not exceeding Rupees Fifty Thousand (Rs.50,000/-) in all their accounts taken together with the total credit in all the accounts not expected to exceed Rupees One Lakh (Rs.1,00,000/-) in a year. In such cases, Branches can open an account after obtaining Introduction from another account holder who has been subjected to full KYC procedure and having an account which is at least six months old with satisfactory transactions. The Photograph of the prospective customer and also his address are to be certified by the introducer (or) any other evidence as to the identity and address of the customer to the satisfaction of the Bank. ii) While opening accounts as described above, the customer should be made aware that if at any point of time, the balances in all his/her accounts with the Branches (taken together) exceeds Rupees Fifty Thousand (Rs. 50,000/-) or total credit in the account exceeds Rupees One Lakh (Rs. 1,00,000/-) in a year, no further transactions will be permitted until the full KYC procedure is completed. In order not to inconvenience the customer, the Branches must notify the customer when the balance reaches Rupees Forty Thousand (Rs. 40,000/-) or the total credit in a year reaches Rupees Eighty thousand (Rs. 80,000/-) that appropriate documents for conducting the KYC must be submitted, otherwise operations in the account will be stopped. iv) Similar KYC standards should be followed in respect of persons affected by floods to enable them to credit the grant received from the Government. However, the maximum balance in such accounts may be permitted as the amount of grant received from the Government or Rs. 50,000 whichever is more and the initial credit of the grant amount shall not be counted towards the total credit Accounts of Migratory workers: The instructions issued by the Govt. for opening of accounts of the migratory workers are as under: A migratory worker may visit any branch of the bank, servicing the area of his / her permanent residence for opening a bank account. 13

14 KYC /AML / CFT Policy The branch will open his / her account on self-certification basis, or on introduction basis, and /or on the basis of the documents made available by the individual including a proof of permanent place of residence, as the case may be, and allow operation immediately. The branch at the time of opening such an account may get the details / proof of permanent place of residence verified through an on-line communication to the branch of the bank servicing the area of permanent domicile of the customer, within 30 days of opening of an account, within which the customer may be allowed operations as permissible for small account to enable him/her to meet basic day-to-day requirements of funds. On receipt of On-line verification of documents, the bank branch will allow full operational facilities in the account, which are available to a normal account Small Accounts Savings Bank account coming under the following parameters are termed as Small Accounts aggregate of all credits in a financial year does not exceed Rs. 1 lakh; the aggregate of all withdrawals and transfers in a month does not exceed Rs.10,000; and the balance at any point of time does not exceed Rs.50,000 No foreign remittances to be credited in the account Small accounts shall remain operational initially for a period of 12 months and thereafter for a further period of 12 months if the holder of such an account provides evidence to the bank for having applied for any of the officially valid documents within 12 months of the opening of the account with the entire relaxation provisions to be reviewed in respect of the account after 24 months. (Officially Valid Documents as per PMLA Amendment Rules include job card issued by NREGA duly signed by the officer of the State Govt) The features to be verified and documents to be obtained for certain types of customers are given in Annexure KYC Updation General Guidelines: As per RBI Guidelines Banks are required to introduce a system of periodical updation of customer identification data (including photograph/s) after the account is opened. The periodicity of such updation should not be less than once in five years in case of low risk category customers and not less than once in two years in case of high and medium risk categories. Hence 'KYC updation'' can be defined as a process of customer identification and consequent re-affirmation of his identity using reliable, independent source documents, data or information available, in addition to the collection of a photograph. The following Customer /Account Types have been considered for exemption: 14

15 Accounts where information is available in Public Domain: Central, State & Public Sector Undertakings / Corporations and Accounts of some publicly known entities like listed companies Non-transactional liability products like term deposits Restricted value accounts like the Small Deposit /Small Accounts/No Frill Accounts in view of in-built safeguards provided in the system In Pensioner Accounts the date of latest Life Certificate can be considered for KYC Updation Non-transactional Asset products like home loans, personal loans, etc. having a pre-determined cash flow (EMI) which carry low AML risk and where a higher level of due diligence has been conducted at the time of credit exposure Standard Asset products like Cash Credit, Overdrafts, and Credit Cards, which are subject to periodic review/renewal where KYC updation may be treated as a part of the review/renewal exercise The date of opening of New accounts with the existing CIF of the Customer can be considered as KYC Updating: while opening such new accounts under an existing CIF Branches are advised to revisit the existing KYC Compliance. Transactions in Dormant / Inoperative Accounts can be permitted only after KYC Updation is completed and marked in the system. The Report containing the list of accounts other than the above can be generated by CBS PO and pushed to Branches for KYC Updation and Branches have to take up the same by contacting the customers through various means such as letters, s, SMS, phone, etc., asking them to furnish their KYC documents afresh. Adequate Public Notice regarding KYC Updation requirement and customer obligation to fulfill the same can be placed in Bank s website, Branch Premises and Newspapers. 4.6 Guidelines for opening new accounts Opening of an account amounts to a contract between the Bank and the customer in which the parties assume certain obligations and become entitled to certain legally enforceable rights. Hence Branches should ascertain whether a prospective customer has contractual capacity and whether any restriction is imposed by law on his / her the contractual capacity before opening an account The prospective account holder should normally be required to fill in the account opening form in the presence of branch official. This means for opening an account, the customer should come to branches in person and the account should not be normally opened without a meeting between the Bank official and the customer. 15

16 4.6.3 The following declaration is available in the current account opening form. I / We am / are not enjoying credit facilities with any other Banks or any other branch of your Bank and I/we undertake to inform you in writing, as soon as any credit facility is availed by us from any other Banks or any other branch of your Bank, (or) I / We am / are enjoying credit facilities with the Bank(s)/other branch(es) of your Bank as per details given in the enclosed sheet The operating staff should cultivate awareness about the significance of the above declaration and background thereof In the case of a prospective customer who is a corporate or large borrower enjoying credit facilities from more than one Bank, branches should carry out due diligence while opening the account. Bank should inform the fact of opening of account to the consortium leader, if the account is under consortium, or the banks concerned, if it is under multiple banking arrangement. Bank may open current accounts of prospective customers in case no response is received from the existing bankers after a minimum waiting period of a fortnight. If a response is received within a fortnight, branches should assess the situation with reference to the information provided by the Bank concerned on the prospective customer. Branches are not required to solicit a formal No Objection certificate from the existing bankers consistent with the true freedom to the customer of Banks as well as needed due diligence by the Bank on the customer Whenever references are received from other Banks for opening accounts with them for our customers, it should be attended to immediately and our reply should be sent within a week from the date of receipt of letter. Proper records should be maintained for having sent our reply for future reference In respect of transfer of current accounts from other banks care should be taken to see that undesirable accounts are not transferred to us. It is advisable in such cases to refer to those Bank from whom the accounts are being transferred. Where the account is being transferred at the solicitation of our Branches, such a reference may be unnecessary New accounts should be opened only with cash. In special cases (e.g., NRI, Govt. accounts, etc.) cheques on our Bank drawn in favour of the prospective customer may be accepted for opening the account. No account should be opened with cheques in favour of some third party and endorsed in favour of the prospective customer If business or residential address of the prospective account holder is outside the area of operation of the branch or if the introducer is an account holder of another branch proper enquiries should be made about the reason for opening of the account and without verifying the genuineness of the signature of the introducer, no cheque book should be issued. The Branch Manager has to make more enquiries than usual to test the credentials of the prospective customer before allowing to open the account. 16

17 Whenever an employee of another Bank branch opens an account, a reference should be made to the employer Bank / branch informing them the fact of opening of the account Obtention of Photographs i) Two copies of latest passport size photographs should be obtained from all account holders opening deposit accounts such as SB, Current account, Fixed Deposit, RD, RIP, etc. One copy of the photograph obtained should be kept along with the opening form after obtaining the depositors signature, name and account number on the reverse of the photograph duly attested by the Officer. The second copy (with the same details marked therein) should be kept along with the specimen signature card/in a separate cover. All categories of depositors including non-residents are covered by the above provisions. ii) In the case of joint account and partnership accounts, photograph of all depositors/ partners authorised to operate the account should be obtained. Besides photographs should be obtained from all the persons authorised to operate the accounts in case of mandates / similar accounts. iii) In case of Limited Companies, Clubs, Associations, Societies, Trust, Institutions, etc. the photograph of person(s)/official(s) who are authorised to operate the account should be obtained. In the case of HUF, the photograph of Karta should be obtained. iv) Photographs need not be returned at the time of closure of the account and they need be retained along with the other records. v) Exemptions from obtaining photographs a. For accounts of Banks, Government Departments and Local Bodies the photographs need not be insisted. b. Photographs need not be obtained in the case of SB account operated by withdrawal slips only (non-cheque operated accounts) and in case of term deposits of Rs.10,000 and below. c. Photographs need not be obtained for existing account holders as on and for employees accounts. However, when a fresh account is opened by an existing customer or additional name is added to existing account, then photographs should be obtained from such a customer or from all the joint account holders who are authorised to operate the account. 17

18 Authority to authorise opening of new accounts i) Opening of new deposit accounts (current, Savings and Term deposits) is permitted only if authorised by following officials. Level of Risk Low Medium High Category of Branch All Categories a. Small and Medium b. Large & Very Large c. Exceptionally Large a. Small, Medium, Large and Very large 18 Official designated to authorise opening of new account Officer in charge of the respective section Asst. Branch Manager/Branch Manager Manager /Sr. Manager /Asst. Br. Manager / Br. Manager Senior Manager /Chief Manager / Branch Manager Branch Manager b. Exceptionally Large Chief Manager/ Branch Manager ii) In case of Extension Counters, for low risk and medium risk customers, the Officer in charge of the Extension Counter may authorise opening of an account. However, for high risk customers, it should be referred to the main branch to which the extension counter is attached Issue of Cheque Books for Newly Opened Accounts a. Cheque book should be issued with the written authority of BM /ABM /Officer-in-charge of the Department only. b. The details of the first cheque book issued to the customer should be recorded in the account opening form. c. A cheque book issued in respect of a newly opened account should be stamped with the notation New Account Collection of instruments in Newly Opened Accounts For accounts opened based on introduction, pending confirmation from the introducer, no cheque / draft should be collected in respect of an account a. introduced by officials of another branch b. where the introducer did not call on the Branch at the time of opening of the account Introduction: There is no need for obtaining introduction for accounts in the name of individuals with low Risk provided the required documents are produced by the customer. In case of Medium & High Risk accounts however introduction is essential. Branches are advised to refer to the guidelines/ procedures enumerated in the Manual of Instructions-Deposits 2006.

19 Quoting of PAN a) As per clause (C) of rule 114B of the Income Tax Rules 1962, PAN (Permanent Account Number or GIR Number (General Index Register Number - where PAN has not been allotted) allotted by the Income Tax Department has to be quoted i. in account opening forms pertaining to time deposits above Rs.50,000 and /or ii. for opening an account b) Hence, branches should obtain without fail the PAN/GIR number of the customer (whether individual or otherwise) and note the same in the account opening forms and validation can be done with the tools provided in CBS. c) In case PAN or GIR Number has not been allotted or the person is not an Income Tax assessee, a declaration in Form No.60 or 61, as the case may be, should be obtained. Efforts however should be taken to get the Pan No at the earliest in such cases Despatch of letter of thanks to new customers i) Branches should send a letter of thanks to all SB / Current account customers in a closed cover under certificate of posting, not later than the next working day of opening of account. Officer signing such letters should ensure that the address thereon is complete and correct. ii) Officer-in-charge of SB / Current account section should record under his initials the date of despatch of the letter in the account opening form after verifying the despatch register and also in the Remarks Column of Register of Accounts Opened and Closed. iii) In cases where letters of thanks are returned undelivered for the reasons No such address, No such person / addressee and alike, Caution should be noted in the ledger in red ink under the initials of the officer and a remark should be made in the Accounts Opened and Closed Register. iv) Branch Manager/Asst. Branch Manager/any other officer deputed for this purpose should call at the address given in the account opening form to verify whether the reason for non-delivery is correct. Introducer should be immediately contacted to verify the bonafides of introduction and his personal knowledge about the antecedents of the customers. v) The nature of credits into the account should be probed into. In respect of credits by way of Mail Transfers, Demand Drafts, the issuing branch should be contacted for the genuineness of the instruments. In respect of credits by way of OBC realisation, drawee/realising branch should be contacted so as to ascertain the genuineness of the realisation advices. vi) The debits in the account should not be allowed without establishing beyond doubt the bonafides of the customer. 19

20 Account in fictitious names etc: KYC /AML / CFT Policy i) When it is established beyond doubt that the account was opened in fictitious name and address or when a fraud is suspected to have been perpetrated in an account, the staff working at the counter should be confidentially advised to act in a discreet manner. The assistance of Police may be taken for apprehending the culprit when he calls on the branches for putting through some transactions. ii) The nature of credits / debits in the account should also be probed into. Care should be taken to see that all the related documents / vouchers are kept in the joint custody of BM/ABM and officer in charge so as to ensure that the documents are not tampered with. A detailed report should be sent to Zonal Office concerned with copy marked to HO: Vigilance Department immediately. iii) The Customer Indentification requirements given herein above in this Policy are in addition to the procedures / guidelines already contained in Chapter 2 of the Manual of Instructions Deposits 2006 for opening of accounts for different types of customers so as to ensure that no account is opened in anonymous or fictitious/benami name(s). Branches should meticulously adhere to these guidelines in letter and spirit Proprietory Concerns: Additional care should be exercised in opening account in the name of sole-proprietorship concerns. If the request is to open accounts in impersonal names (e.g. Chennai Stores) or in any name other than the sole proprietor s own name, the fact that the applicant is really the soleproprietor of the concern should be verified from independent sources. While opening the accounts of the sole proprietary concern as a customer indetification procedure branches should verify and obtain any two of the documents mentioned in Annexure No It should be ensured that, whatever the procedure adopted, it does not lead to denial of access to the general public for banking services. 5. Monitoring Of Transactions i) RBI guidelines require that Banks should exercise ongoing due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the client, his business and risk profile and where necessary, the source of funds. Monitoring customer activity and transactions that take place throughout a relationship helps the banks to know their customers, assess risk and provides greater assurance that the Bank is not being used for the purposes of financial crime. Thus monitoring means analysis of a customer s transactions to detect whether the transactions appear to be suspicious from an AML or CFT perspective. ii) Transaction involving financing of the activities relating to terrorism includes transaction involving funds suspected to be linked or related to, or to be used for terrorism, terrorist act or by a terrorist, terrorist organisation or those who finance or are attempting to financing of terrorism. 20