wht kyc is required essay

Category: Finance,
Words: 571 | Published: 04.29.20 | Views: 576 | Download now


In these days of ripoffs, terrorism, KYC has become the keyword in financial sector. Before the execution of KYC Policy, banking companies used to look for an introduction from an existing consumer to open a brand new account, even though an introducer cannot be sued or otherwise held responsible for any mishap, and it has become a very prevalent practice to introduce one to the bank not knowing its consequences. In 2002, RBI directed all banking companies to meticulously follow the KYC guidelines to curb the financial scams effectively and to help make it banks confident with the bonafide and ethics of customers.

Objective: Target of KYC is to inhibits banks coming from being used, deliberately or unintentionally, by legal elements for money laundering or perhaps financial terrorism or scam. It allows banks to know their buyer and their monetary dealings which help to take care of risk prudently. It is the program used by financial institutions to control frauds and determine money laundering.

Standard: Consumer has been thought as an individual or entity having account or financial transactions or a single on in whose behalf account is maintained.

KYC policy is compilation of 4 factors “

i)Customer Acceptance insurance plan: Branch may well not open accounts of a person whose personality cannot be verified. If branch is unsatisfied with the identification or somehow it is located that the person is having police arrest records or reference to terrorist group, branch may possibly close the account or perhaps terminate banking relationship following sending a notice detailing the reason.

ii)Identification Procedure: identification is done on the basis of documents given by the customer as (a) evidence of identity and (b) proof of address. Table of owners of the lender should have in place adequate procedures to establish procedure to check identification. In case of small put in accounts like No Frill A/cs, some relaxation can be granted towards the individuals as they are in no position to supply required KYC documents. Documents differs together with the nature of customer type, e. g., minor, firm, trust, NRI etc . iii)Monitoring of Deal: If the transaction amount within a a/c surpasses Rs. 12 Lacs(Dr or perhaps Cr) within a calendar month, the a/c must be monitored cautiously. If any kind of suspicious characteristics is found, that should be reported to Financial Intellect Unit ” India. iv)Risk Management: According to the source of fund and characteristics of transaction, customers will be categorized in 3 organizations ” Low risk, Medium risk and High risk.

Existing customer: In case of existing consumers without KYC, banks are required to turn them into totally KYC complied customers by getting ideal documents normally this may levy a penalty via banks. Realization: Money laundering through financial institution not only impacts the bank’s image yet also the officials who were used because instruments along the way. A banker loses any kind of statutory safeguard u/s 131 of NI Act if it found that KYC has not been done properly. In a broader sense it affect the country’s economy as well. In the whole method we need to make sure KYC adherence by persuasive the customers that all these are for their long term fascination. Also make sure that extra solidity may lose in financial business by using denial of banking assistance.

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