Know Your Customer (KYC) standards are designed to protect financial institutions against fraud, corruption, money laundering and terrorist financing. KYC involves several steps to: establish customer identity; understand the nature of customers’ activities and qualify that the source of funds is legitimate; and.
KYC involves several steps to (i) establish customer identity (ii)understand the nature of customers’ activities and qualify that the source of funds is legitimate; and (iii) assess money laundering riskas associated with customers.
The KYC norms in banking, as outlined by the RBI, are a set of procedures and rules that these institutions must follow to verify the identity and address of their customers. This process involves collecting and verifying documents that prove a customer’s identity and residential address.
RBI guidelines:
KYC norms refer to the regulatory and legal framework that financial institutions must follow to verify the identity, suitability, and risks involved with maintaining a business relationship with the customer. The process involves collecting and verifying personal details of customers, such as name, address, contact details, and other identifying information. The essence of KYC is not just about knowing who your customers are but also about understanding their financial dealings to mitigate risks effectively.
When it comes to KYC validation, the RBI mandates the submission of specific documents as proof of identity and address. For most individuals, an Aadhaar card or PAN card, along with a recent photograph, suffices. However, in instances where these documents are unavailable, alternatives like passports, driving licenses, or utility bills can be utilized. The flexibility in documentation caters to a wide array of customer scenarios, ensuring that no one is left out from accessing banking services due to the lack of specific documents.
The Customer Due Diligence (CDD) measures in the case of non-individual customers, individual customers, and Sole Proprietary Firms have been amended in the latest Master Direction dated April 28, 2023, on KYC to include certain additional information/document requirements.
(a) Companies:
(i) The names of the relevant persons holding senior management positions; and
(ii) The registered office and the principal place of its business, if it is different.
(b) Partnership firms:
(i) The names of all the partners; and
(ii) Address of the registered office, and the principal place of its business, if it is different
(c) Trusts:
(i) The names of the beneficiaries, trustees, settlor, and authors of the trust
(ii) The address of the registered office of the trust; and
(iii) List of trustees and documents, as specified in Section 16, for that discharging role as trustee and authorised to transact on behalf of the trust.
Further, Section 33B has been amended to extend its applicability to a customer who purports to act on behalf of a juridical person or individual, or trust.
Customer Due Diligence (CDD) of Individuals:
Section 16 has been amended to specifically provide that REs can obtain KYC Identifier with explicit customer consent to download KYC records from CKYCR, for CDD. CDD Measures for Sole Proprietary Firms: Section 28 has been amended to clarify that “Registration certificate” as a proof of business/ activity in the name of the proprietary firm includes “Udyam Registration Certificate (URC) issued by the Government”.
To know the ‘Video based Customer Identification Process’ click:’V-CIP‘
To know the ‘AMENDMENT TO PREVENTION OF MONEY LAUNDERING ACT AND IMPACT’ click Prevention of Money Laundering
To know the latest changes in KYC click: Amendment
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