RBI for minimizing cost and inconvenience arising out of KYC norms: R Gandhi
Updated: May 26, 2014 04:42:13pm
Hyderabad, May 26 (KNN) The RBI Deputy Governor, R Gandhi has said that, the central bank will try and minimize the cost and inconvenience arising out of Know Your Customer (KYC) norms, while banks should remain vigilant.
“We seek the understanding and the cooperation of all bank customers in complying with the KYC requirements on an ongoing basis. No security comes free of cost or inconvenience. That said, it will be our continued endeavour to minimize such cost and inconvenience.
“Reserve Bank is committed to ease of operations by bank customers, while requiring the banks to be vigilant about nefarious designs of anti-social elements and terrorists to use the banking and financial systems,” Gandhi said while addressing members of the Federation of Andhra Pradesh Chambers of Commerce and Industry here last week.
Speaking about the customer profile and risk categorization, Gandhi said, “Banks can effectively monitor, control and reduce their risk only if they have an understanding of the normal and reasonable activity of the customer so that they have the means of identifying transactions that fall outside the regular pattern of activity.”
Accordingly, banks are required to build the profile for each customer based on risk categorisation. The parameters of risk perception are: nature of business activity, location of customer and his clients, mode of transactions, volume of turnover and the social and financial status of the customer, he added.
An important feature of the current KYC regime is to obviate disproportionate cost to banks and burdensome regime for the customers. This is ensured by putting in place a risk graded CDD procedure, say: Low Risk, Medium risk and High Risk and appropriate CDD level accordingly.
Is risk categorisation a one-time affair? “No. It will be an ongoing affair and banks should have a system of periodical review of risk categorization of accounts once in six months. They have to apply enhanced due diligence measures in case of risk up-gradation, which depends on customer transactions/change in profile,” Gandhi said.
Banks were required to complete the process of risk categorization and compiling/updating profiles of all of their existing customers by end-March 2013. Periodic updation of customer identification data - 2 and 10 years for high and low risk respectively has also been prescribed.
“Who are the Low Risk Customers? Typical examples are the salaried employees; accounts with small balance and low turnover; Government Departments and Government owned companies; regulatory and statutory bodies, etc.
Who will be the High Risk Customers? “They are such as the non-resident customers; HNIs; trusts, charities, NGOs and organizations receiving donations; companies having close family shareholding or beneficial ownership, firms with 'sleeping partners‘; politically exposed persons; non face-to-face customers, jewellers/dealers in gold bullion and those with dubious reputation as per public information available, etc,” he added.
The Deputy Governor, RBI said that the apex bank has prescribed that the KYC policy of banks should four key elements - Customer Acceptance Policy; Customer Identification Procedures; Monitoring of Transactions, and Risk Management.
In the context of KYC framework, the concept of "customer" has now been redefined. A "customer" is no longer just the one who has an Account and/or business relationship with the bank; the ones on whose behalf the account is maintained (i.e. the beneficial owner), the beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors and any person/entity connected with any financial transaction which can pose risk to bank, say, through a wire transfer/issue of a high value DD, etc are all "customers", said RBI.
Speaking on the financial inclusion, he said, “We faced challenges in promoting financial inclusion with this KYC framework. Many of the financially excluded may not have proper official document, especially that of address as in the case of migrant people.”
As per Customer Acceptance Policy guidelines, the CAP and its implementation should not be too restrictive, and must not result in denial of banking service to public, especially to those who are financially or socially disadvantaged. Banks have been advised not to deny public access to banking services, taking the indicative list of documents as an exhaustive list. (KNN/SD)
“We seek the understanding and the cooperation of all bank customers in complying with the KYC requirements on an ongoing basis. No security comes free of cost or inconvenience. That said, it will be our continued endeavour to minimize such cost and inconvenience.
“Reserve Bank is committed to ease of operations by bank customers, while requiring the banks to be vigilant about nefarious designs of anti-social elements and terrorists to use the banking and financial systems,” Gandhi said while addressing members of the Federation of Andhra Pradesh Chambers of Commerce and Industry here last week.
Speaking about the customer profile and risk categorization, Gandhi said, “Banks can effectively monitor, control and reduce their risk only if they have an understanding of the normal and reasonable activity of the customer so that they have the means of identifying transactions that fall outside the regular pattern of activity.”
Accordingly, banks are required to build the profile for each customer based on risk categorisation. The parameters of risk perception are: nature of business activity, location of customer and his clients, mode of transactions, volume of turnover and the social and financial status of the customer, he added.
An important feature of the current KYC regime is to obviate disproportionate cost to banks and burdensome regime for the customers. This is ensured by putting in place a risk graded CDD procedure, say: Low Risk, Medium risk and High Risk and appropriate CDD level accordingly.
Is risk categorisation a one-time affair? “No. It will be an ongoing affair and banks should have a system of periodical review of risk categorization of accounts once in six months. They have to apply enhanced due diligence measures in case of risk up-gradation, which depends on customer transactions/change in profile,” Gandhi said.
Banks were required to complete the process of risk categorization and compiling/updating profiles of all of their existing customers by end-March 2013. Periodic updation of customer identification data - 2 and 10 years for high and low risk respectively has also been prescribed.
“Who are the Low Risk Customers? Typical examples are the salaried employees; accounts with small balance and low turnover; Government Departments and Government owned companies; regulatory and statutory bodies, etc.
Who will be the High Risk Customers? “They are such as the non-resident customers; HNIs; trusts, charities, NGOs and organizations receiving donations; companies having close family shareholding or beneficial ownership, firms with 'sleeping partners‘; politically exposed persons; non face-to-face customers, jewellers/dealers in gold bullion and those with dubious reputation as per public information available, etc,” he added.
The Deputy Governor, RBI said that the apex bank has prescribed that the KYC policy of banks should four key elements - Customer Acceptance Policy; Customer Identification Procedures; Monitoring of Transactions, and Risk Management.
In the context of KYC framework, the concept of "customer" has now been redefined. A "customer" is no longer just the one who has an Account and/or business relationship with the bank; the ones on whose behalf the account is maintained (i.e. the beneficial owner), the beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors and any person/entity connected with any financial transaction which can pose risk to bank, say, through a wire transfer/issue of a high value DD, etc are all "customers", said RBI.
Speaking on the financial inclusion, he said, “We faced challenges in promoting financial inclusion with this KYC framework. Many of the financially excluded may not have proper official document, especially that of address as in the case of migrant people.”
As per Customer Acceptance Policy guidelines, the CAP and its implementation should not be too restrictive, and must not result in denial of banking service to public, especially to those who are financially or socially disadvantaged. Banks have been advised not to deny public access to banking services, taking the indicative list of documents as an exhaustive list. (KNN/SD)
Loading...
