JAIIB PPB Module A Unit 3 : Operational Aspects of KYC

JAIIB Paper 2 (PPB) Module A Unit 3:Operational Aspects of KYC (New Syllabus) 

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 2 (Principles and Practices of Banking) includes an important topic called “Operational Aspects of KYC”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 2 (PPB) Module A Unit 3: Operational Aspects of KYC.
Aspirants must go through this article to better understand the topic, Banker Customer Relationship and practice using our Online Mock Test Series to strengthen their knowledge of Banker Customer Relationship.

Introduction

RBI has laid down operational norms for banks and other entities regulated by it, in Master Directions- ‘Know your customer (KYC) Directions 2016’.

The provisions of these directions are applied to:

  • Banks and entities regulated by RBI
  • Branches and majority owned subsidiaries located abroad.

In case of variance in KYC/AML standards prescribed by RBI and host country regulators, the stringent regulation of two is to be followed.

Know Your Customer (KYC) Norms

Customer Acceptance Policy

  • No account is opened in anonymous or benami name.
  • No account is opened where appropriate customer due diligence measures can not be applied either due to non-cooperation of customer or non-reliability of information furnished.
  • No transaction or account-based relationship is undertaken without following CDD procedure.
  • Circumstances in which a customer is permitted to act on behalf of another person is spelt out.
  • To ensure that the identity of customer does not match with any person whose name appears in sanction lists circulated by RBI.
  • To verify PAN obtained through the facility of issuing authority.
  • To verify digital signature of an e-document given by customer.
  • The mandatory information during on-boarding /periodic updation should be specified in KYC policy. Any additional information should be obtained with prior consent of customer.
  • In case of Joint accounts, CDD procedure is carried out for all joint account holders.

NOTE: In case of non-compliance of KYC guidelines by an existing customer, bank may decide to close the account after giving due notice to the customer.

Customer Identification Procedures

Identifying and verifying the identity by using reliable, independent source documents, data or information to be done in following cases:

  • While opening a account or establishing account based relationship.
  • Undertaking international transfer for non-account holders.
  • If a doubt arises about authenticity of an existing customer.
  • Selling any product of value over Rs.50,000.
  • Carrying out a transaction valued over Rs. 50,000 for a walk-in customer.
  • When there is a doubt that customer is intentionally structuring transactions below threshold of Rs. 50,000

Customer Due Diligence Procedure

Customer due diligence includes customer identification, and also obtaining information about the following:

  • Customer’s location
  • Nature of business activity
  • Purpose for which banking services will be used
  • Mode of payments
  • Volume of turnover
  • Social and Financial status

INDIVIDUALS (CDDP)

Individuals Requiring CDD:

Documents to be obtained from an individual associated with the bank in any of the under mentioned capacities are listed here.

  • A person entering in an account based relationship.
  • Beneficial owner of a legal entity customer.
  • An authorised signatory of a legal entity customer
  • A power of attorney holder of a legal entity customer

NOTE: Where any of the above mentioned documents is obtained for address purpose, within three months an OVD with current address must be submitted by the customer

Individuals Requiring CDD:

Documents to be obtained from an individual associated with the bank in any of the under mentioned capacities are listed here.

  • A person entering in an account based relationship.
  • Beneficial owner of a legal entity customer.
  • An authorised signatory of a legal entity customer
  • A power of attorney holder of a legal entity customer

Change in name

  • Where there has been change in name, an OVD with previous name along with the marriage certificate or the Gazette Notification indicating the change in name can be accepted.

Aadhar based KYC (norms)

  • To be used only with the written consent of the customer.
  • Must be redacted on the bank’s records, physical and electronic, retaining only the last 4 digits.
  • A customer wanting credit of benefit subsidy under a notified scheme: Biometric authentication of Aadhaar is mandatory.
  • For a customer voluntarily using Aadhaar number for identification purpose banks may carry out e-KYC Authentication or offline verification
  • If a customer provides a current address different from that in Aadhaar records, a self-declaration is to be obtained.

Accounts of non-face-to-face customers- OTP based Aadhaar Verification : Restrictions

  • Aggregate balance of all the deposit accounts of the customer shall not exceed 1 lakh
  • Aggregate of all credits in a financial year, in all the deposit accounts taken together, shall not exceed 2 lakh
  • For borrowal accounts, only term loans shall be sanctioned and the aggregate amount of term loans sanctioned shall not exceed 60,000 – in a year.
  • Both deposit and borrowal accounts shall not be allowed for more than one year within which normal mode identification is to be done,
  • If OVD is not submitted CDD procedure not completed within a year, a deposit account will be closed and no disbursals will be made on the borrowal account
  • A declaration to be obtained that no other account using this mode has been opened nor will be opened at any other financial institution or a bank.

Sole Proprietary Firms (CDDP)

CDD of the individual (proprietor) shall be carried out and in addition, any two of the following documents are to be obtained:

  • Registration certificate
  • Certificate licence issued by the municipal authorities under Shop and Establishment Act
  • Sales and income tax returns
  • CST/VAT/ GST certificate (provisional final)
  • Certificate registration document issued by Sales Tax/ Service Tax authorities
  • IEC (Importer- Exporter Code) issued to the proprietary concern by the office of DGFT
  • Income Tax Return in the name of the sole proprietor
  • Utility bills such as electricity, water, landline telephone bills, etc.

Companies (CDDP)

  • Certificate of Incorporation
  • Memorandum and Articles of Association
  • Permanent Account Number of the company
  • Particulars of the Beneficial Owners
  • Resolution of the Board of Directors
  • KYC Documents of the beneficial owners, the authorised signatories and the managers, officers or employees holding an attorney to transact on the company’s behalf

Partnership Firms (CDDP)

  • Registration Certificate
  • Partnership Deed
  • Permanent Act Number of the partnership firm
  • KYC Documents of the Partners, the Beneficial Owners, and the persons holding power of attorney to transact on its behalf.

Trusts (CDDP)

  • Certificate of registration
  • Trust deed
  • Permanent Account Number or Form No.60 of the Trust
  • Documents of the Beneficial Owners the person holding an attorney to transact on its behalf.

Unincorporated Association (CDDP)

  • Resolution of the managing body of such association or body of individuals
  • Permanent Account Number or Form No. 60 of the unincorporated association
  • Power of attorney granted to transact on its behalf
  • KYC Documents of the Members of Managing Body, the Beneficial Owners, and the persons holding an attorney to transact on its behalf.
  • Such information as may be required by the bank to collectively establish the legal existence of such an association or body of individuals

Identification of Beneficial Owner

A beneficial owner is a person who enjoys the benefits of ownership though the property’s title is in another name.

The criteria for determination of beneficial ownership essentially are:

  • Ownership or entitlement in capital, property or benefit of the entity meeting certain threshold value
  • Control exercised over the activities of the entity through any other means.

The threshold values in respect of different types of legal persons are as follows:

Enhanced Due Diligence Requirements

(a)For Accounts of non-face-to-face Customers: the first payment should be effected through the customer’s KYC-complied account with another RE, for enhanced due diligence

(b)For Politically exposed persons: Check all the information available on the person in the public domain and seek information about the sources of funds before accepting the PEP as a customer

(c)For Client Accounts Opened by Professional Intermediaries:

  • Single client: Clients shall be identified.
  • Pooled Accounts of professional intermediaries (mutual funds, pension funds or other types of funds): Can be opened in normal course.
  • Accounts of professional intermediaries (bound by client confidentiality prohibiting disclosure of client details to the RE): Not to open such accounts.

Simplified Due Diligence Requirements

(a)For Accounts of Self-Help Groups:

  • For Savings Bank account: CDD of all the office bearers shall suffice. CDD of all the members is not required.
  • For Credit Linking of SHGs: CDD of all the members to be undertaken.

(b) For Accounts of Foreign Students:

  • Passport (with visa & immigration endorsement) and address in the home country, Photograph, and Letter offering admission from the educational institution in India.
  • To obtain declaration about local address, within 30 days of opening the account
  • Foreign remittances not exceeding USD 1000 or equivalent can be credited and not to exceed Rs.50,000/-
  • Prior RBI approval is required to open account of students with Pakistani nationality

Simplified Due Diligence Requirements

(a)For Foreign Portfolio Investors:

  • Accounts of FPls eligible registered as per SEBI guidelines can be opened on the basis of specified documents for the respective category of FPI.
  • Income Tax (FATCA/ CRS) Rules need to be observed
  • Undertaking from FPI or its Global Custodian that as and when required, the exempted documents as detailed in Annex III will be submitted.

(b)Small Accounts: No OVD

These accounts are opened based on the customer’s declaration about identity (self-attested photograph) and address to be signed and given in the presence of a designated bank official at the bank branch. The designated official will certify that the customer has signed in his presence.

The customer should provide OVD within 12 months. If a customer provides evidence of having applied for an OVD, account can be continued for another 12 months. On expiry of 24 months these relaxations are reviewed.

Restrictions on Small Accounts

Customer Level KYC/Monitoring

  • The Unique Customer Identification Code (UCIC) allotted to the customers help a bank to identify customers, track the facilities availed by them, monitor their financial transactions in a holistic manner, and enable banks to have a better approach to risk profiling of customers.
  • This also enables the KYC /CDD processes at the customer level, thus avoiding these procedures to be repeated for a customer separately for each product service availed by the customer

Periodic Updation

Alternative Modes of CDD Procedure

(a)CDD by Third Party

  • Records or the information of the CDD is obtained within two days from the third party or from the Central KYC Records Registry.
  • Banks need to satisfy themselves adequately that copies of identification data and other relevant documents be made available to them by the third party upon request without delay.
  • The third party satisfies following norms: It is regulated, supervised or monitored. It has measures in place for, compliance with CDD and record maintenance and It is not based in a country or jurisdiction assessed as high risk
  • The ultimate responsibility for CDD/ applicable EDD measures lies with the bank

(b)Video based Customer Identification Process

  • VCIP can be used when on-boarding new customer, for conversion of accounts opened in non-face to face mode by OTP based Aadhaar e-KYC and Updation Periodic updation of KYC for eligible customers

(c)Digital KYC

  • This process requires bank’s officer to meet the customer in person. Services of Business Correspondents can be used.

Wire Transfers

  • Cross-border wire transfers: All such shall be accompanied by accurate and meaningful originator information such as name, address and account number or a unique reference number (in the absence of account). This does not apply to transfers where both the remitter and beneficiary are banks or financial institutions
  • Domestic wire transfers: All such actions of Rs. 50,000 and above shall be accompanied by originator information such as name, address and account no.
  • The originator information should be preserved for at least five years by the ordering bank.
  • A bank that is an intermediary in a chain of wire transfers should ensure that all originator information accompanying a wire transfer is retained with the transfer.
  • Beneficiary Bank should have procedures to identify wire transfers lacking complete originator information. Such transactions should be reported as STR to FIU-Ind

Central KYC Records Registry

  • Central KYC Records Registry (CKYCR) is an entity authorised to receive, store, safeguard and retrieve the KYC records of a customer in digital form.
  • Government of India has authorised the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) to act as, and to perform the functions of the CKYCR.
  • Banks are required to upload regularly on CKYCR the KYC data pertaining to all individual accounts opened on or after January 1, 2017 and for accounts of legal entities (LE’s) opened on or after April 1, 2021.
  • In case of accounts of Individuals opened prior to January 1, 2017, and those of LEs opened prior to April 1, 2021, the KYC records are to be uploaded on to CKYCR during periodic updation.
  • The KYC information should be uploaded within 10 days of commencement of account based relationship with the customer.

Monitoring Of Transaction

  • Transactions that involve large amounts of cash, inconsistent with the normal and expected activity of the customer, are subjected to detailed scrutiny.
  • Banks are required to have adequate arrangements for monitoring of transactions for detection of suspicious transactions and reporting these to FIU-Ind.
  • The decisions for filing STR is taken by Principal Officer.

 RECORD MANAGEMENT

Banks are required to maintain records of transactions for five years from the date of transactions and KYC documents, business correspondence, customer related information for 5 years from the date of end of relationship.

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