ByLipsa Raval

Faculty Member, N. I. C. M.

Types of risk in bank Credit risk Market risk Interest Rate risk Liquidity risk Investment risk Operational risk Technology risk Legal risk Reputation risk

Kidnapping Drug Trafficking Bribery/corruption Tax Evasion Serious crime or All crimes White collar crimes (including insides trading and

securities offences)/ Pink collar crimes Robbery and Fraud Gambling Organized crime

◦ Extortion◦ Prostitution◦ Smuggling (arms, people, goods)

Placement◦ of criminal proceeds into the financial system

Layering◦ of transactions to confuse the audit trail and distance

the original source of funds (e.g. successive transactions, international transfers, early termination products, tax haven companies, genuine businesses).

Integration◦ of funds back into the real economy as “clean and

respectable money”

Offence of Money Laundering (section 3)Whoever

(a) acquires, owns, possesses or transfers any proceeds of crime; or

(b) knowingly enters into any transaction which is related to proceeds of crime either directly or indirectly; or

(c ) conceals or aids in the concealment of the proceeds of crime

Commits the offence of money laundering

Indian Penal Codes Narcotic Drugs and Psychotropic

Substances Act, 1985 Arms Act 1959 Wild Life (Protection) Act, 1972 Immoral Traffic (prevention) Act, 1956 Prevention of Corruption Act, 1988

What are the risks to banks?(i) Reputational risk(ii) Legal risk(iii) Operational risk(iv) Concentration risk

All risks are inter-related and together have the potential of causing serious threat to the survival of the bank

These guidelines are issued under Section 35 (A) of the Banking Regulation Act, 1949 and any contravention of the same will attract penalties under the relevant provisions of the Act. Banks are advised to bring the guidelines to the notice of their branches and controlling offices.

Definition of Customer A customer or entity that maintains an account

and/or has a business relationship with the bank; One on whose behalf the account is maintained

(i.e. the beneficial owner) Beneficiaries of transactions conducted by

professional intermediaries such as stock brokers, chartered accountants, solicitors, etc. as permitted under the law, and

Any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of high value demand draft as a single transaction.

Know your customer standards Customer Acceptance Policy Customer Identification Procedure Monitoring of Transactions Risk Management Customer education Introducing of new technologies - credit

cards/debit cards/smart cards/gift cards KYC for existing accounts Appointment of principal officer

Towards Name proof Photo Identification Towards address proof

Passport where the address differs Telephone Bill

Voter’s Identity Card Bank account statement

PAN Card Income/Wealth tax assessment order

Driving Licence Credit Card Statement

Govt. /Defence ID card * Electricity Bill

ID cards of reputed employers * Ration Card

Letter from a recognised public authority or public servantverifying the identity and residence of the customer*

Letter from employer*

*Subject to the satisfaction of the officer authorising the opening of the account•Note: Original should be produced for verification and copy, duly attested by the verifying official, shall be kept along with the accountopening form.

For low risk customers Once in three years For medium risk customers Every year For high risk customers Every year

On-going monitoring of transactions for identifying suspicious and high value cash transactions (Rs. 10 lakhs)

Special attention to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose.

Prescription of threshold limits Review of risk classification Reporting to law enforcement authority

High Risk Customers Medium risk customers Low risk customers

Proper systems and procedures to be in place to enable the management to review effective implementation of KYC norms

Banks internal/concurrent auditors to verify application of KYC procedures and to evaluate the effectiveness of banks KYC policies and procedures

A quarterly compliance report to be placed before the audit committee.

Accounts of Trusts Accounts of Companies and Firms Accounts opened by professional

intermediaries Accounts of Politically Exposed Persons

resident outside India Non-Face-To-Face Transaction Correspondent Banking

Revised guidelines to apply to all the existing customers on the basis of materiality and risk

Transactions in existing accounts to be continuously monitored for review of CDD measures

All existing accounts of companies, firms, trusts, charities, religious organizations and other institutions to be subjected to minimum KYC

CTR- Cash Transaction Report- For all cash transaction above Rs. 10 lakhs in a month

STR- Suspicious Transaction Report Reports should be prepaid in E- Form Should be sent to RBI on each working last

Friday

Financial intermediaries should prepare and maintain documentation on their customer relationships and transactions to meet the requirements of relevant laws and regulations, to enable any transaction effected through them to be reconstructed. In the case of wire transfer transactions, the records of electronic payments and messages must be treated in the same way as other records in support of entries in the account.

All financial transactions records should be retained for at least five years after the transaction has taken place and should be available for perusal and scrutiny of audit functionaries as well as regulators as and when required.

Relaxed KYC procedure refers to acceptance of an introduction in full KYC procedure subject to certain conditions prescribed.

This relaxation is applicable for Low Income Group customers, individuals falling under the 'No frill‘ category, persons affected by natural calamities like floods, cyclone, tsunami, etc.

Low Income group customers are those who keep balances not exceeding Rs.50000/- in all their accounts (FDR/CA/SB) taken together and the total credit summation in all the accounts taken together is not expected to exceed Rupees One Lakh (Rs.100000/-) in a year.

For these customers, branches are permitted to open accounts subject to the following conditions:

I. An introduction (in lieu of the KYC documents) from another account holder who has been subjected to full KYC procedure should be given.

II. The introducer's account with the Bank should be at least six month's old and should show satisfactory transactions.

III. The photograph of the customer who proposes to open the account and his address need to be certified by the introducer.

When, at any point of time, the total balance in all his/her accounts (FDR/SB/CA) with the Bank taken together exceeds Rupees Fifty thousands (Rs.50000/-) or total credit summation in all the accounts exceeds Rupees one lakh (Rs.100000/-) in a year, no further transactions will be permitted until the full KYC procedure is completed.

Employee Training Banks should take steps to provide proper

training to its employees on the statutory/ regulatory requirements and the internal policy & procedures so that the risks are well understood and managed

Employees should also be educated on the need for proper handling of customer queries

Customer Education Distribution of pamphlets etc. may be

considered

Thank You