AML and KYC
OBJECTIVE
The objective of KYC/AML/CFT guidelines is to prevent banks/FIs from being used, intentionally or
unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC
procedures also enable banks/FIs to know/understand their customers and their financial dealings
better and manage their risks prudently.
APPLICABILITY
All types of banks and financial institutions life AMC, insurance companies, NBFC etc.
KYC Policy
Banks/FIs should frame their KYC policies incorporating the following four key elements:
i. Customer Acceptance Policy (CAP);
ii. Customer Identification Procedures (CIP);
iii. Monitoring of Transactions; and
iv. Risk Management.
Customer Acceptance Policy (CAP)
Banks/FIs should develop clear customer acceptance policies and procedures, including a description
of the types of customers that are likely to pose a higher than average risk to the bank/FI.
No account is opened in anonymous or fictitious/benami name.
Parameters of risk perception are clearly defined in terms of the nature of business activity, location of
the customer and his clients, mode of payments, volume of turnover, social and financial status, etc.
so as to enable the bank/FIs in categorizing the customers into low, medium and high risk ones.
The bank/FI should have suitable systems in place to ensure that the identity of the customer does
not match with any person or entity, whose name appears in the sanction lists circulated by the
Reserve Bank.
Customer Identification Procedure (CIP)
Customer identification means undertaking client due diligence measures while commencing an
account-based relationship including identifying and verifying the customer and the beneficial owner
on the basis of one of the OVDs. Banks/FIs need to obtain sufficient information to establish, to their
satisfaction, the identity of each new customer, whether regular or occasional, and the purpose of the
intended nature of the banking relationship. The bank/FI must be able to satisfy the competent
authorities that due diligence was observed based on the risk profile of the customer in compliance
with the extant guidelines in place.
The Customer Identification Procedure to be carried out at different stages, i.e.,
i. while selling banks’ own products, payment of dues of credit cards/sale and reloading of prepaid/travel
cards and any other product for more than Rs. 50,000/-.
ii. when carrying out transactions for a non-account based customer, that is a walk-in customer, where
the amount involved is equal to or exceeds Rs. 50,000/-, whether conducted as a single transaction or
several transactions that appear to be connected.
iii. when a bank/FI has reason to believe that a customer (account- based or walk-in) is intentionally
structuring a transaction into a series of transactions below the threshold of Rs. 50,000/-
Monitoring of Transactions
Ongoing monitoring is an essential element of effective KYC/AML procedures. Banks/FIs should
exercise ongoing due diligence with respect to every customer and closely examine the transactions to
ensure that they are consistent with the customer’s profile and source of funds as per extant
instructions. The extent of monitoring will depend on the risk category of the account. High risk accounts
have to be subjected to more intensified monitoring. For example: large and complex transactions, and
those with unusual patterns, which have no apparent economic rationale or legitimate purpose.
Risk Management
Banks/FIs should exercise on going due diligence with respect to the business relationship with every
client and closely examine the transactions in order to ensure that they are consistent with their
knowledge about the clients, their business and risk profile and where necessary, the source of funds.
7. Combating Financing of Terrorism
The United Nations periodically circulates the following two lists of individuals and entities, suspected
of having terrorist links, and as approved by its Security Council (UNSC).
(a) The “Al-Qaida Sanctions List”, includes names of individuals and entities associated with the Al-
Qaida. The Updated Al-Qaida Sanctions List is available
at http://www.un.org/sc/committees/1267/aq_sanctions_list.shtml.
(b) The “1988 Sanctions List”, consisting of individuals (Section A of the consolidated list) and entities
(Section B) associated with the Taliban which is available at http://www.un.org/sc/committees/
1988/list.shtml.
The United Nations Security Council Resolutions (UNSCRs), received from Government of India, are
circulated by the Reserve Bank to all banks and FIs. Banks/FIs are required to update the lists and take
them into account for implementation of Section 51A of the Unlawful Activities (Prevention) (UAPA) Act,
1967, discussed below. Banks/FIs should ensure that they do not have any account in the name of
individuals/entities appearing in the above lists. Details of accounts resembling any of the
individuals/entities in the list should be reported to FIU-IND.
