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Know Your Customer (KYC) – What is KYC? What Documents are Required?

What is Know Your Customer (KYC)?

KYC Stands for “Know Your Customer”. Know your customer (KYC) policy is an important step developed globally to prevent identity theft, financial fraud, money laundering and terrorist financing. The objective of KYC is to enable banks to know and understand their customers better and help them manage their risks prudently.

KYC is a regulatory and legal requirement and KYC policies are framed by respective banks incorporating the key elements following the Reserve Bank of India’s directive in 2004 such as Customer Acceptance Policy, Customer Identification Procedures, Monitoring of Transactions and Risk management

The process of KYC entails identifying the customer and verifying the identity by using reliable and independent documents or information. While opening different accounts, the Bank collects documents to identify and verify the customer as required under the existing laws to demonstrate that it has performed the existing KYC procedures.

Situations When KYC is required?

KYC has to be followed by every financial institute while dealing with customers. KYC procedure needs to be adhered to by a customer during following instances:

  • While opening an account in a bank
  • While applying for a credit card or loan
  • While opening a subsequent account
  • Opening a locker facility
  • When there are not enough documents with the bank in existing account
  • When there are changes in signatories, beneficial owners, etc
  • When the bank feels it necessary to obtain additional information from existing customers based on conduct of the account
  • While investing in a mutual fund
  • Financial institutes may ask for a mandatory KYC process in other instances too

According to the KYC policy, a “Customer” is-

  • 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.

 

What does KYC control?

  • Collection and analysis of basic identity information (“Customer Identification Program” or CIP)
  • Name matching against lists of known parties
  • Determination of the customer’s risk in terms of propensity to commit money laundering, terrorist finance, or identity theft
  • Creation of an expectation of a customer’s transactional behavior
  • Monitoring of a customer’s transactions against their expected behavior and recorded profile as well as that of the customer’s peers

For Accounts of individuals, the bank will require the following information and documents under KYC.

  1. Legal name and any other change in names used.
  2. Correct permanent address

The individual/s will have to provide the original document for verification and submit a copy for the Bank’s record.

Identity Proof(any one of the following)

i.  Passport

ii. PAN card

iii. Voter’s Identity Card

iv.Driving license

v. Ration Card

vi. Identity card (subject to the bank’s satisfaction)

 

Address Proof(any one of the following)

i. Utility bill

ii.Bank account statement received by mail / courier along with signature verification by the Banker or a cheque drawn on that account for a minimum amount as specified by the Bank, deposited into the account

iii.Ration card

iv. Letter from employer (subject to satisfaction of the bank)

Documents Required For KYC

For Accounts of Companies/Partnership Firms/Trusts & Foundation, a different set of documentation and information is required.

Account Holders may be requested to furnish their recent passport size colored photograph along with the signed KYC submission format on the Bank’s request. It is also important to note that there is a requirement for theperiodic updating of KYC Information as and when called for by the Bank.

If the bank is unable to apply appropriate KYC measures due to non-furnishing of information or non-cooperation by the customer, the bank has the right to consider closing the account or terminating the banking relationship after issuing due notice to the customer explaining the reasons for taking such a decision.

Watch video to learn about KYC, its procedure and documents required for KYC at It’s All About Money.

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