KYC (Know Your Customer) Interview Questions
What is KYC?
KYC is an acronym for “Know your Customer”, a term used for
customer identification process. It involves making reasonable efforts to
determine true identity and beneficial ownership of accounts, source of funds,
the nature of customer’s business, reasonableness of operations in the account
in relation to the customer’s business, etc which in turn helps the banks to
manage their risks prudently. The objective of the KYC guidelines is to prevent
banks being used, intentionally or unintentionally by criminal elements for
money laundering.
KYC has two components - Identity and Address. While
identity remains the same, the address may change and hence the banks are
required to periodically update their records.
What are Objectives of KYC?
Money laundering is a growing menace and it not only poses serious threat to the stability and integrity of the financial system but also to the sovereignty and safety of nations worldwide. In the coming days, challenges before banks would primarily lie in saving themselves from the growing threat of money laundering. Click Here to read India’s Efforts to Tackle Money Laundering.
In India, prevention of money laundering act (PMLA) was passed in 2002 and it has been aligned with the financial action task force (FATF) recommendations in 2009. Further, India has become a member of FATF in 2010.
Banks are being extensively sensitised about money laundering and KYC norms.
In India Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority. These ‘Know Your Customer’ guidelines have been revisited time to time in the context of the Recommendations made by the Financial Action Task Force (FATF) on Anti
Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT).
These standards have become the international benchmark for framing Anti Money Laundering and combating financing of terrorism policies by the regulatory authorities. Compliance with these standards both by the banks/financial institutions and the country have become necessary for
international financial relationships.
Is there any legal backing for verifying identity of
clients?
Yes. Reserve Bank of India has issued guidelines to banks
under Section 35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention
of Money-Laundering (Maintenance of Records of the Nature and Value of
Transactions, the Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of the Identity of the
Clients of the Banking Companies, Financial Institutions and Intermediaries)
Rules, 2005. Any contravention thereof or non-compliance shall attract
penalties under Banking Regulation Act.
I want to keep a fixed deposit in a bank. Is KYC -
applicable to me?
Yes. KYC is applicable to customers of the bank. For the
purpose of KYC following are the ‘Customers of the bank.
a person 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 a high value demand draft as a single transaction.
Is there any procedure specified for Customer
Identification?
Customer identification means identifying the customer and
verifying his/her identity by using reliable, independent source documents,
data or information. Banks have been advised to lay down Customer
Identification Procedure to be carried out at different stages i.e. while
establishing a banking relationship; carrying out a financial transaction or
when the bank has a doubt about the authenticity/veracity or the adequacy of
the previously obtained customer identification data.
Once KYC requirements are complied with while opening the
account, whether the bank can again ask for KYC compliance from me?
Yes. To ensure that the latest details about the customer
are available, banks have been advised to periodically update the customer
identification data based upon the risk category of the customers.
Banks create a customer profile based on details about the
customer like social/financial status, nature of business activity, information
about his clients’ business and their location, the purpose and reason for
opening the account, the expected origin of the funds to be used within the
relationship and details of occupation/employment, sources of wealth or income,
expected monthly remittance, expected monthly withdrawals etc. When the
transactions in the account are observed not consistent with the profile, bank
may ask for any additional details / documents as required. This is just to
confirm that the account is not being used for any Money
Laundering/Terrorist/Criminal activities.
I had submitted my driving licence as a proof of identity
and address but still the bank asked for telephone / electricity bill.
There are two aspects of Customer Identification. One is
establishing identity and the other is establishing present residential
address.
For establishing identity, the bank requires any authentic
document carrying photo of the customer such as driving licence/ passport/ pan
card/ voters' card etc. Though these documents carry the residential address of
the customer, it may not be the present address. Therefore, in order to
establish the present address of the customer, in addition to passport/ driving
licence / voters' card / pan card, the bank may ask for utility bills such as
Telephone / Electricity bill etc.
Other Questions
1.
Money Laundering refers to Conversion of
illegal money through banking channels
2.
In case of societies, the important document to be verified is Copy of bye laws.
3.
PAN (Permanent Account Number) is compulsory for Fixed Deposits, Remittances
like DDs/TTs/RTCs, etc if the amount
exceeds Rs 50,000.
4.
Dormant/ in operative account means No
debits/credits in account for a certain period.
5.
While opening an account of a Public Limited company, which of the following is
a must? Certificate of
incorporation/Certificate of commencement of business
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