RBI eases Know Your Customer norms for opening bank accounts

Reetu Sharma :!3 June 2014

The Reserve Bank of India has come to the rescue of all those who face roadblocks while opening a bank account due to lack of ‘address proof’.

Relieving migrant workers and employees with transferable jobs who find themselves having to face harrowing procedures to access banking services, the RBI on Monday said that a bank account can now be opened with just one address proof, which can be either permanent or local.

Freedom from ‘address proof’

The move, which will also benefit millions living in rented accommodations, came in the form of a notification issued by the RBI, said, “Henceforth, customers may submit only one documentary proof of address (either current or permanent) while opening a bank account or while undergoing periodic updation. In case the address submitted changes, fresh proof of address may be submitted to the branch within a period of six months.”

This means that now a person from any State — say Delhi — can open a bank account without going through bureaucratic hassles even in Andhra Pradesh using the address proof of his home State.

Simplifying the Know Your Customer (KYC) norms for opening accounts, the Central bank also said, “In case the proof of address furnished by the customer is not the local address or address where the customer is currently residing, the bank may take a declaration of the local address on which all correspondence will be made by the bank with the customer. No proof is required to be submitted for such address for correspondence/local address. This address may be verified by the bank through ‘positive confirmation’ such as acknowledgment of receipt of (i) letter, cheque books, ATM cards; (ii) telephonic conversation; (iii) visits; etc.”

The RBI added, “In the event of change in this address due to relocation or any other reason, customers may intimate the new address for correspondence to the bank within two weeks of such a change.”

The story so far…

Till now, all customers who wanted to open a bank account had to submit an identity proof (PAN card, voter’s ID, driving licence or any other identity), along with utility bills (electricity bill) which acted as an address proof. The banks used to insist on address proof of the place where the customer is residing. The entire process, needless to say, was a big source of hassle for customers.

Ashish Kumar, who works in an outsourcing firm, told Niti Central, “I could not open my bank account in Delhi because I didn’t have a permanent address in the city. The Bank did not open my bank account and I had to face a lot of problems. For every single grievance, I had to either go to my native place or take help of my friends living in Delhi, who had their accounts here. Now finally, I will be able to open an account in this city.”

But why this change now?

Explaining the rationale behind the move, the notification said, “Reserve Bank has been receiving representations/references from various quarters, especially migrant workers, transferred employees etc. regarding problems faced in submitting a proof of current/permanent address while opening a bank account. The matter has since been examined in the light of amendment to the Prevention of Money Laundering Rules (Maintenance of Records), 2005, and accordingly it has been decided to simplify the requirement of submission of proof of address.”

This simplification of procedure to open an account will specially help those who face difficulty in doing so in the cities where they work.

As the process becomes more user-friendly, the number of account-holders is likely to increase because the complex process till now has been a barrier to entry.

In the opinion of officials

Earlier, even Reserve Bank Governor Raghuram Rajan had emphasised the need to make KYC norms less bureaucratic as a big chunk of Indian population still doesn’t have access to banking.

Speaking at the 10th convocation of the National Institute of Bank Management in Pune, Rajan said, “It is a shame that so many people in our country don’t have access to banking. Can we do this (KYC) better (without) compromising on security, while allowing ease of access? That is something we need to think about. We have to be innovative.”

A Business Standard report from last year says, “In a study done by Crisil, just one in two Indians has access to a savings bank account and just one in seven Indians has access to bank credit. There are merely 684 million savings bank accounts in the country with a population of 1.2 billion.”

RBI has taken this decision to ease the process of account opening and make the norms easier for customers. This will also help them achieve the goal of financial inclusion which is the top agenda of Indian finance in 2014.

Expressing a note of caution, RK Bansal, Executive Director of IDBI Bank was quoted byBusiness Standard as saying, “Though this is a step ahead in financial inclusion, it may pose some operational challenges initially for the banks. “Banks will have to be careful in verifying the permanent address. It will slightly increase the requirement of verification.”

Does KYC help know your customer?

BL Anna Mazzon 10 mar 14

Financial regulations lead up to a lot of costly documentation. This ironically allows scamsters to slip through

A UK-based NGO that investigates corruption around the world unmasked a massive money-laundering scheme involving the small Central Asian nation of Kyrgyzstan and four UK-based ‘shell’ companies. The risk it exposed is the kind that KYC regulations were created to prevent.

By the time the scheme was discovered in 2010, over a billion dollars had passed through foreign bank accounts set up by entities that were obviously illegal. Oneowner was a Russian who died three years before the company was formed. None of their accounts were properly registered, and one was legally classified as dormant.

Know Your Customer (KYC) anti-money-laundering regulations are becoming increasingly important globally to help businesses protect themselves from identity theft, money laundering and financing terrorism. Nevertheless, episodes like these are all too common and the costs of complying with KYC’s anti-corruption due diligence procedures are high. According to the International Monetary Fund, incidents involving money-laundering, compliance violations of KYC regulations, and other breaches are estimated to cost between two and five per cent of the world’s GDP.

Managing the burden of proof

High-profile money-laundering incidents involving major global banks are not new, although in recent years a number of firms have been fined record sums for laundering and KYC violations. This was seen most recently in January when the Financial Conduct Authority, Britain’s financial regulator, fined a South African bank for failures in anti-money-laundering controls. As a result, firms are becoming more diligent, organised and proactive in managing the risks and compliance, and are now spending more time and money trying to remedy and avoid repetition of damaging incidents and violations. The operating challenges, however, are considerable. The primary obligations with which the industry must comply are known by an array of acronyms: anti-money-laundering (AML) and anti-bribery regulations (ABC), tax transparency initiatives such as the US Foreign account tax compliance act (FATCA), the Dodd-Frank act (DF), markets in financial instruments directive (MiFID), and European market infrastructure regulation (EMIR) just to name a few.

We recently researched how financial institutions and their clients view their key challenges around KYC compliance. The challenges most often cited were differing processes for different businesses or jurisdictions, time-consuming documentation and the lack of harmonised document collection systems.

Basic requirements

At a minimum, organisations are required to document clients’ business type, their source of funds and wealth, the purpose of specific transactions and the expected nature and level of transactions. Many of the sources of data, which include certificates of incorporation, lists of company directors, directors’ passports, and cross holdings, can be very difficult to track down; collection and verification can take several months. Because there are no standards for documentation, there is little consistency and a lot of duplication. . In addition, financial institutions often ask for documents from their clients that are not explicitly required under KYC rules. Different regulators in different jurisdictions also require different identity documents. Regulators also expect the financial institutions to review and refresh the data on typically one-, three- and five-year cycles depending on the type of client.

Global banks are spending in the hundreds of millions to manage and update information that has to be redone with every new regulation. Demand for professionals to manage KYC compliance is rising but there are not enough individuals with the proper compliance training. Financial industry collaboration will be important in establishing standards to ensure more consistency in KYC documentation requirements.

(The writer is global head of Thomson Reuters KYC Program)

(This article was published on March 10, 2014)

ICICI, ING Vysya Bank fined by RBI on KYC lapses

ING Vysya has been fined Rs 55 lakh and ICICI Rs 30 lakh

 Live Mint : Joel Rebello :Oct 09 2012. 08 28 PM IST

 The Reserve Bank of India (RBI) on Tuesday said it has penalised private sector ICICI Bank Ltd and ING Vysya Bank Ltd for failure to follow the central bank’s norms on the know your customer (KYC) procedure, anti-money laundering standards and combating financing of terrorism.

ING Vysya has been fined Rs 55 lakh and ICICI Rs 30 lakh, RBI said on its website.

The levies were for “failure to obtain adequate documents for opening accounts, failure to carry out sufficient customer identification procedures, failure to examine control structure of entities, failure to ascertain the identification of natural persons behind entities, failure to carry out effective enhanced due diligence, failure to carry out appropriate risk categorisation and delay in filing the suspicious transaction reports,” RBI said.

RBI had issued show cause notices to these banks and imposed the penalties after considering the written and oral responses by the banks. The ICICI spokesperson could not be reached for comment. The ING spokesperson said he had not seen the directive

RBI-Know your Customer (KYC) guidelines

RBI/2009-10/362 DBOD.AML.BC.No.80/14.01.001/2009-10 March 26, 2010 The Chairmen and Chief Executive Officers All Scheduled Commercial Banks excluding RRBs/ All India Financial Institutions/Local Area Banks Dear Sir, Know your Customer (KYC) guidelines – accounts of proprietary concerns A reference is invited to Para 2.4(a) of the Master Circular on KYC/AML/CFT/Obligation of banks under Prevention of Money laundering Act (PMLA), 2002 issued to banks vide DBOD.AML.BC.No.2/14.01.001/2009-10 dated July 1, 2009. It has been advised to banks that internal guidelines for customer identification procedure of legal entities may be framed by them based on their experience of dealing with such entities, normal bankers’ prudence and the legal requirements as per established practices. If the bank decides to accept such accounts in terms of the Customer Acceptance Policy, the bank should take reasonable measures to identify the beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it knows who the beneficial owner(s) is/are 2.  For sake of clarity, in case of accounts of proprietorship concerns, it has been decided to lay down criteria for the customer identification procedure for account opening by proprietary concerns. Accordingly, apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, banks / financial institutions  should  call  for and  verify  the  following documents before opening of accounts in the name of a proprietary concern: i) Proof of the name, address and activity of the concern, like 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, etc. ii) Any two of the above documents would suffice. These documents should be in the name of the proprietary concern. 4. These guidelines will apply to all new customers, while in case of accounts of existing customers, the above formalities should be completed in a time bound manner and should be completed before December 31, 2010. 5.   Please acknowledge receipt. Yours faithfully, (Vinay Baijal) Chief  General Manager bankfinance555@gmail.com