Operational Aspects of KYC/Customer Service: Jaiib/DBF Paper 2 (Module D) Unit-2
Dear bankers,
As we all know that is Operational Aspects of KYC/Customer Service for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Operational Aspects of KYC/Customer Service (Unit-2), Banking Operations and Accounting Functions (Module D), Accounting Finance for Bankers-Paper 2.
Table of Contents
♦Know Your Customers (KYC) Norms
RBI has issued instructions to all banks to implement certain procedural norms on KYC. Failure attracts levy of penalty and of penalty has been levied, the same is to be disclosed in the notes to accounts. It is, therefore, necessary that framework relating to “Know Your Customer’ and Anti- Money Laundering measures is formulated and put in place by very bank.
- Customer Acceptance Policy
- Customer Identification Procedures
- Monitoring of Transactions
- Risk management
Note: 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.
Features to be verified and documents required to be obtained from customers
| Features | Documents |
| Accounts of individuals
o Legal name and any other names used
o Correct permanent address |
(i)Passport (ii) PAN card (iii) Voter’s Identity Card (iv) Driving License (v) *Job Card issued by NREGA duly signed by an officer of the State Govt (vi) The letter issued by the Unique Identification Authority of India ( UIDAI) containing details of name, address and Aadhaar number (vii) Identity card (subject to the bank’s satisfaction) (viii) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank.
(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
o Name of the company o Principal place of business o Mailing address of the company o Telephone/Fax Number |
(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 |
| Accounts of partnership firms
o Legal name o Address o Names of all partnersand their addresses o Telephone numbers of the firm and partners |
(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 |
| Accounts of trusts & foundations
o Names of trustees, settlors, beneficiaries and signatories o Names and addresses of the founder, the managers/directors and the beneficiaries o Telephone/fax numbers |
(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 |
| Accounts of Proprietorship Concerns Proof of the name, address and activity of the concern | 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 • 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, registration/licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/ Department, etc. Banks may also accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT as an identity document for opening of the bank account. etc. • The complete Income Tax return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected, duly authenticated/ acknowledged by the Income Tax Authorities. • Utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern. Any two of the above documents would suffice. These documents should be in the name of the proprietary concern. |
♦Norms for Periodical Updation of KYC
Bank would need to continue to carry out on –going 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, wherever necessary, the source of funds.
- Full KYC exercise will be required to be done at least every two years for high risk individuals and entities.
- Full KYC exercise will be required to be done at least every 10yrs for low risk and at least every 8 yrs for medium risk individuals and entities.
- Fresh photographs will be obtained from minor customer on becoming major.
♦Recent simplified KYC measures by RBI
(1) Single document for proof of identity and proof of address
- Officially valid documents (OVDs) for KYC purpose include: Passport, driving licence, voters’ ID card, PAN card, Aadhaar letter issued by UIDAI and Job Card issued by NREGA signed by a State Government official.
- To further ease the process, the information containing personal details like name, address, age, gender, etc., and photographs made available from UIDAI as a result of e-KYC process can also be treated as an ‘Officially Valid Document’.
(2) No separate proof of address is required for current address
- Since migrant workers, transferred employees, etc., often face difficulties while submitting a proof of current address for opening a bank account, such customers can submit only one proof of address (either current or permanent) while opening a bank account or while undergoing periodic updation. If the current address is different from the address mentioned on the proof of address submitted by the customer, a simple declaration by her/him about her/his current address would be sufficient.
(3) No separate KYC documentation is required while transferring accounts from one branch to another of the same bank
- Once KYC is done by one branch of the bank, it is valid for transfer of the account to any other branch of the same bank. The customer would be allowed to transfer her/his account from one branch to another branch without restrictions and on the basis of declaration of his/her local address for communication.
(4) Small Accounts
- Those persons who do not have any of the ‘officially valid documents’ can open ‘small accounts’ with banks. A ‘small account’ can be opened on the basis of a self-attested photograph and putting her/his signature or thumb print in the presence of an official of the bank. These small accounts would be valid normally for a period of twelve months. Thereafter, such accounts would be allowed to continue for a further period of twelve more months, if the account holder provides a document showing that she/he has applied for any of the officially valid document, within twelve months of opening the small account.
(5) Relaxation regarding officially valid documents (OVDs) for low risk customers
If a person does not have any of the ‘officially valid documents’ mentioned above, but if is categorised as ‘low risk’ by the banks, then she/he can open a bank account by submitting any one of the following documents:
- 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;
- letter issued by a gazetted officer, with a duly attested photograph of the person.
(6)Periodic updation of KYC
- Time intervals for periodic updation of KYC for existing low/medium and high risk customers have been increased from 5/2 yrs to 10/8/2 yrs, respectively.
(7) Other relaxations
- 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.
- Foreign students have been allowed a time of one month for furnishing the proof of local 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 opening account.
♦Operational Procedure to be followed by banks for e-KYC exercise
The e-KYC service of the UIDAI is be leveraged by banks through a secured network. Any bank willing to use the UIDAI e-KYC service is required to sign an agreement with the UIDAI. The process flow to be followed is as follows:
(1) Sign KYC User Agency (KUA) agreement with UIDAI to enable the bank to specifically access e-KYC service.
(2) Banks to deploy hardware and software for deployment of e-KYC service across various delivery channels. These should be Standardisation Testing and Quality Certification (STQC) Institute, Department of Electronics & Information Technology, Government of India certified biometric scanners at bank branches/ micro ATMs/ BC points as per UIDAI standards.
(3) Develop a software application to enable use of e-KYC across various Customer Service Points (CSP) (including bank branch, BCs etc.) as per UIDAI defined Application Programming Interface (API) protocols. For this purpose banks will have to develop their own software under the broad guidelines of UIDAI. Therefore, the software may differ from bank to bank.
(4) Define a procedure for obtaining customer authorization to UIDAI for sharing e-KYC data with the bank. This authorization can be in physical (by way of a written explicit consent authorising UIDAI to share his/her Aadhaar data with the bank/BC for the purpose of opening bank account) /electronic form as defined by UIDAI from time to time.
(5) Sample process flow would be as follows:
- Customer walks into CSP of a bank with his/her 12-digit Aadhaar number and explicit consent and requests to open a bank account with Aadhaar based e-KYC.
- Bank representative manning the CSP enters the number into bank’s e-KYC application software.
- The customer inputs his/her biometrics via a UIDAI compliant biometric reader (e.g. fingerprints on a biometric reader).
- The software application captures the Aadhaar number along with biometric data, encrypts this data and sends it to UIDAI’s Central Identities Data Repository (CIDR).
- The Aadhaar KYC service authenticates customer data. If the Aadhar number does not match with the biometrics, UIDAI server responds with an error with various reason codes depending on type of error (as defined by UIDAI).
- If the Aadhaar number matches with the biometrics, UIDAI responds with digitally signed and encrypted demographic information [Name, year/date of birth, Gender, Address, Phone and email (if available)] and photograph. This information is captured by bank’s e-KYC application and processed as needed.
- Bank’s servers auto populate the demographic data and photograph in relevant fields. It also records the full audit trail of e-KYC viz. source of information, digital signatures, reference number, original request generation number, machine ID for device used to generate the request, date and time stamp with full trail of message routing, UIDAI encryption date and time stamp, bank’s decryption date and time stamp, etc.
- The photograph and demographics of the customer can be seen on the screen of computer at bank branches or on a hand held device of BCs for reference.
- The customer can open bank account subject to satisfying other account opening requirements.
♦Customer Service in Banks
(i)Service at the counters
- Business hours/working hours
- Display of time norms
- Uninterrupted Service
- Guidance to Customers
- Provision of ramps at Automated Teller Machines (ATMs)/Branches
Non-voucher generating transactions
- Issue of pass books/statement of accounts
- Issue of cheque books
- Delivery of term deposit receipts/drafts
- Acceptance of share application forms
- Acceptance of clearing cheques
- Acceptance of bills for collection
Voucher generating transactions
- Issue of term deposit receipts
- Acceptance of cheques for locker rent due
- Issue of travellers cheques
- Issue of gift cheques
- Acceptance of individual cheques for transfer credit
(ii)Identity Badges
(iii) Complaint Box and Book
(iv) Advisory Services on deposit schemes
(v) Brochures/pamphlets for guidance of customers
(vi) Banking facilities to the visually challenged
(vii) Fair Practice code- Display of Bank/Service charges
(viii) Cheque Drop facility and the Facility for Acknowledgement of cheques
(ix) Infrastructure provision
(x) Customer education
(xi) Term Deposit Maturity Intimation in Advance
♦Banking Codes and Standards Board of India (BCSBI)
In November 2003, Reserve Bank of India (RBI) constituted the Committee on Procedures and Performance Audit of Public Services under the Chairmanship of Shri S.S.Tarapore (former Deputy Governor) to address the issues relating to availability of adequate banking services to the common person. The Committee recommended setting up of the Banking Codes and Standards Board of India (BCSBI). BCSBI was set up to ensure that the common person as a consumer of financial services from the banking Industry is in no way at a disadvantageous position and really gets what he/she has been promised.
The main objectives of the BCSBI are
- To plan, evolve, prepare, develop, promote and publish comprehensive Codes and Standards for banks, for providing for fair treatment to their customers.
- To function as an independent and autonomous body to monitor, and to ensure that the Codes and Standards adopted by banks are adhered to, in letter and spirit, while delivering services to their customers.
- BCSBI monitors the implementation of the Codes through the following methods:
- Obtains from member banks an Annual Statement of Compliance (ASC)
- Visits branches to find out the status of ground-level implementation of Codes
- Studies complaints received from customers and orders / awards issued by Banking Ombudsmen / Appellate Authority to find out whether there is any system-wide deficiency
- Organizes an annual Conference with Principal Code Compliance Officers of the Member banks to discuss implementation issues.
BCSBI Also
- Undertakes campaigns and initiatives to spread awareness of the Codes amongst customers and banks
- Provides faculty support to training establishments of banks
- Participates in on-location workshops held by / for member banks to increase coverage
- associates with customer awareness programmes conducted by Banking Ombudsmen
- provides credit counselling services in Mumbai
- publishes quarterly newsletter entitled ‘Customer Matters’, containing matters of interest to customers
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