• Know Your Customer

    All the regulatory authorities from different countries have made it very important for their banks to ensure that they should know all the customers they are dealing with. Adequate due diligence procedure is placed for both new and existing customers in order to stop money laundering and mitigate reputational, legal and other risks. For this, central banks have applied “Know Your Customer (KYC)” norms for all the banks operating in the country.

    The KYC guidelines include a proper customer acceptance policy, customer identification program, extensive due diligence procedures and monitor all the transactions including suspicious ones.

    Key steps involved in implementing KYC by a bank

    • Capture all the information from the customers (New as well as existing customers).
    • All the vital information needs to be collected by the bank before offering them any financial services.
    • Validate all the information by verifying all the supporting documents submitted by the customers. The verification process requires customers to submit all the relevant supporting documents to the banks.
    • Evaluate risk and compile the risk score for each customer after validating his details. Recognize all the customers based on risk before offering them any financial services.
    • Banks should perform proper investigative if it finds any suspicious transaction by the customers. Proper investigation is necessary before continuing business with them.
    • Banks should report any regulatory breaches to the appropriate regulatory authority immediately to take necessary actions.

    It should monitor transactions and records of the customers continuously and take prompt action whenever required.

    Proper KYC standards help banks to protect their reputation and reduce their legal, operational and other risk exposures.

    The KYC Standards are not only applicable to banks but also for other financial institutions including the non-banking financial institutions which deal with the customers. In India, KYC is mandatory for all the customers to invest in mutual funds.

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