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AML & KYC

KNOW YOUR CUSTOMER


CUSTOMER: one who maintains an
account, establishes business
relationship, on whos behalf account is
maintained.
Know? what you should know?
True identity and beneficial ownership of the
accounts.
Permanent address, registered &
administrative address.

What KYC means


Making reasonable efforts to
determine the true identity and
beneficial ownership of accounts.
Sources of funds
Nature of customers business
What constitutes reasonable account
activity?
Who your customers customer are?

Knowing your customer


means
Seeking evidence of identity and address and
independently confirming that evidence at the
start of a business relationship with the Bank.
Seeking information regarding the nature of the
business that the customer expects to conduct
with the Bank, establishing sources of income
and expected patterns of transactions, and
keeping that information up to date, to show
what might be regarded as normal activity for
that customer.

Customer identity- whose identity


must be verified?
Establishing the identity of anyone who wishes to do
business with the Bank is vital. For all applicants the Bank
is required to be satisfied that:
The genuineness of the person and his/her bona-fide
address (current mailing address) is established.
The sole traders/proprietors, partnership, company we are
dealing with are a legitimate business with a known
address and represents legitimate owners. Therefore, in
respect of accounts for sole traders/proprietors,
partnerships and companies, it is necessary to verify the
identity of the business entity PLUS the key individuals
who will be operating the account as well as those who are
declared as investors to the business (beneficial owners).

Knowing the customers


business
It is not sufficient only to identify the
customer, it is also necessary to understand
the customers business and the use of the
account or other banking services.
Knowing the customer obviously includes
knowing who the customer is and where
he / she lives or conduct their business, but
KYC is also about what the customer does,
his/her/their financial circumstances and
how the account will be used.

KYC does not means

Denial of service to common person.


Intrusive behavior.
Use of information for cross selling.
Harassment of customers
threatening to close down the
account arbitrarily.

Advantages of KYC
Sound KYC procedures have particular
relevance to the safety and soundness
of banks, in that
They help to protect banks reputation and
integrity of banking system by reducing
likely hood of banks becoming a vehicle for
or a victim of financial crime and suffering
consequential reputational damage.
They provide an essential part of sound
risk management system.

Core elements of KYC


Customer acceptance policy
Customer identification procedurecustomer profile
Risk classification of accounts-risk
based approach.
Risk management
Ongoing monitoring of account
activity.
Reporting of cash and suspicious
transactions.

Suspicious transactions
Suspicious transaction means a
transaction whether or not made in
cash which, to a person acting in
good faith
Gives rise to a reasonable ground of
suspicion that it may involve the
proceeds of crime; or
Appears to be made in circumstances of
unusual or unjustified complexity; or
Appears to have no economic rationale
or bonafide purpose.

Suspicious transactions
Providing misleading information/
information not easily verifiable while
opening an account.
Large cash withdrawals from a dormant or
inactive account or account with
unexpected large credit from abroad.
Sudden increase in cash deposits of an
individual with no justification.
Employees leading lavish lifestyles that do
not match their known income sources.

Suspicious transactions
Large cash deposits into the same account.
Substantial increase in turnover in a
dormant account.
Receipts or payments of large cash sums
with no obvious purpose or relationship to
account holder/ his business.
Reluctance to provide normal information
when opening an account or providing
minimal or fictitious information.

FOUR KEY ELEMENTS OF CDD /


KYC
Banks CDD / KYC policy has four major elements:
Customer Identification: Establishing the identity of
customers is central to the CDD / KYC policy both for the
customer acceptance or rejection decision and for the ongoing monitoring of customers' accounts and transactions.
By identifying customers effectively, you are able to deal
with them in the appropriate manner and comfortably.
Customer Acceptance: The point at which a new
customer is accepted or rejected is the easiest point at
which the risk of dealing with illegal money can be
avoided. By following good customer acceptance policies,
you can avoid dealing with entities and individuals who
might engage in illegal transactions.

Accounts & Transactions Monitoring: In an


effective CDD / KYC policy, customer accounts and
transactions are properly classified in terms of risk
and are regularly monitored. Through checks and
thresholds, unusual activities or activities by highrisk customers are detected and reviewed.
Risk Management: To ensure that the risks posed
by money laundering / terrorist financing and other
criminal customer activities are consistently dealt
with, good risk management practices are essential.
In this way the Bank can 'scale' its operations by
remaining vigilant about customer-driven risk.

Politically exposed
person(PEP)
PEP stands for politically Exposed Person. Business
relationships with individuals holding important public
positions and with persons or companies clearly related to
them may expose a bank to significant reputational and / or
legal risks. Such politically exposed person (PEPs) are
individuals who are/or have been entrusted with prominent
public functions, including heads of state or of government ,
senior politicians, senior government judicial or military
officials, senior executives of publicly owned corporations
and important political party officials. Senior personnel from
judiciary, executive, armed forces, administration etc should
be reviewed with respect to the possibility of being PEP.
Branch / controlling office investigate the source of funds
before accepting a PEP.

Politically exposed person


Politically Exposed Person also means a person who holds or has ever
held one of the following offices or positions in or on behalf of state:

head of state or head of government;


member of the executive council of government or member of legislature;
deputy minister or equivalent rank;
Ambassador or attach or counsellors of an ambassador;
military officer with a rank of a Brigadier or above;
President of a state-owned company or a state-owned bank;
Head of government agency;
Judge; (all categories of judges e.g. Civil Court (Magistrates of all classes), Additional
District Judge (ADJ), District Judge (DJ), High Court Judges, Supreme Court Judges). Also
Tribunals, Anti - Corruption Service Tribunals, Environmental Committee Judges.
leader or president of a politically party represented in a legislature; or
Holder of any prescribed office or position. The definition also includes any prescribed
family member of such a person.

PEP will continue to be identified as PEP even though the individual no longer
holds the position which basically means that once PEP, always PEP.

Prudential regulations
Regulation M-1: know your
customer(KYC)
Regulation M-2: anti money
laundering measures
Regulation M-3: Record retention
Regulation M-4: correspondent
banking
Regulation M-5: Suspicious
transactions.