RBI Master Circular No: RBI/2014-15/27 (01-Jul-14) Master Circular on Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT) / Obligations of banks under Prevention of Money Laundering Act (PMLA), 2002

UBD.BPD. (PCB).MC.No.16/12.05.001/2014-15

Chief Executive Officers

All Primary (Urban) Co-operative Banks

Madam/ Dear Sir,

Please refer to our Master Circular UBD.BPD. (PCB).MC.No.16/12.05.001/2013-14 dated July 1, 2013 on the captioned subject (available at RBI website www.rbi.org.in). The enclosed Master Circular consolidates and updates all the instructions / guidelines on the subject issued up to June 30, 2014 and circulars mentioned in the Appendix.

Yours faithfully,

A. K. Bera,

Principal Chief General Manager

Encls.: As above

Paragraph No. Particulars
1 Introduction
1.1 Definition of Customer
2 Guidelines
2.1 General
2.2 KYC policy
2.3 Customer Acceptance Policy
2.4 Customer Identification Procedure
2.5 Customer Identification Requirements -- Indicative Guidelines
2.6 Small deposit accounts
2.7 Monitoring of transactions
2.8 Closure of accounts
2.9 Risk Management
2.10 Introduction of new technology -- credit/debit/smart/gift card
2.11 Usage of ''At par'' Cheque facility extended to Cooperative Banks by Scheduled Commercial Banks
2.12 Combating Financing of Terrorism
2.13 Correspondent banking
2.14 Wire Transfers
2.15 Principal Officer
2.16 Designated Director
2.17 Maintenance of records of transactions/information to be preserved/maintenance and preservation of records/Cash and Suspicious Transactions reporting to Financial Intelligence Unit -- < xml:namespace prefix = st1 />India
2.18 Cash and Suspicious Transaction Report
2.19 Maintenance of Records in respect of Non-Profit Organisations and filing of Non-Profit Organisation Transaction Report (NTRs) to FIU-IND
2.20 Maintenance of Records and filing of Suspicious Transaction Reports (STRs) to FIU-IND in respect of Walk-in Customers
2.21 Customer Education/Employees'' Training/Employees'' Hiring
Annex I -- Indicative list of documents required for opening of accounts
Annex II -- List of reporting formats
Annex III -- UAPA Orders dated August 27, 2009
Annex IV -- Government of India Notification dated December 16, 2010
Annex V - Operational Procedure to be followed by UCBs for e-KYC exercise
Annex VI -- Category of Eligible Foreign Investors
Annex VII - KYC documents for eligible FPIs under PIS
Appendix -- List of circulars consolidated in the Master Circular

Master Circular on

Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT) / Obligations of banks under Prevention of Money Laundering Act (PMLA), 2002

1. Introduction

The objective of KYC/AML/CFT guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently. 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 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). Detailed guidelines based on the Recommendations of the Financial Action Task Force and the paper issued on Customer Due Diligence (CDD) for banks by the Basel Committee on Banking Supervision, with indicative suggestions wherever considered necessary, have been issued. Banks are advised to ensure that a proper policy framework on ''Know Your Customer'' and Anti-Money Laundering measures with the approval of the Board is formulated and put in place. The guidelines issued by the Reserve Bank are under Section 35 A of Banking Regulation Act, 1949 (As Applicable to Co-operative Societies) and any contravention of or non- compliance with the same may attract penalties under the relevant provisions of the Act.

1.1 Definition of Customer

For the purpose of KYC policy, a ''Customer'' is defined as:

· 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.

2. Guidelines

2.1 General

i. Banks should collect only ''mandatory'' information required for KYC purpose which the customer is obliged to give while opening an account at the time of opening the account / during periodic updation. Other 'optional' customer details / additional information, if required, may be obtained separately only after the account is opened with the explicit consent of the customer. The customer has a right to know what is the information required for KYC that she / he is obliged to give and what is the additional information sought by the bank that is optional.

ii. Banks should keep in mind that the information (both 'mandatory' - before opening the account as well as 'optional'- after opening the account with the explicit consent of the customer) collected from the customer for the purpose of opening of account is to be treated as confidential and details thereof are not to be divulged for cross selling or any other like purposes. Banks should, therefore, ensure that information sought from the customer is relevant to the perceived risk, is not intrusive, and is in conformity with the guidelines issued in this regard.

iii. Banks should ensure that any remittance of funds by way of demand draft, mail/telegraphic transfer or any other mode and issue of travellers'' cheques for value of Rupees fifty thousand and above is effected by debit to the customer''s account or against cheques and not against cash payment.

iv. Banks should ensure that the provisions of Foreign Contribution (Regulation) Act, 1976 as amended from time to time, wherever applicable, are strictly adhered to.

2.2 KYC Policy

Banks should frame their KYC policies incorporating the following four key elements:

a. Customer Acceptance Policy;

b. Customer Identification Procedures;

c. Monitoring of Transactions; and

d. Risk Management.

2.3 Customer Acceptance Policy (CAP)

a) Every bank should develop a clear Customer Acceptance Policy laying down explicit criteria for acceptance of customers. The Customer Acceptance Policy must ensure that explicit guidelines are in place on the following aspects of customer relationship in the bank:

i. No account is opened in anonymous or fictitious/benami name(s);

ii. Parameters of risk perception are clearly defined in terms of the nature of business activity, location of customer and his clients, mode of payments, volume of turnover, social and financial status etc. to enable categorisation of customers into low, medium and high risk (banks may choose any suitable nomenclature viz. level I, level II and level III). Customers requiring very high level of monitoring, e.g. Politically Exposed Persons (PEPs) may, if considered necessary, be categorised even higher;

iii. Documentation requirements and other information to be collected in respect of different categories of customers depending on perceived risk and keeping in mind the requirements of PML Act, 2002 and instructions/guidelines issued by Reserve Bank from time to time;

iv. Not to open an account or close an existing account where the bank is unable to apply appropriate customer due diligence measures i.e. bank is unable to verify the identity and /or obtain documents required as per the risk categorisation due to non cooperation of the customer or non reliability of the data/information furnished to the bank. It is, however, necessary to have suitable built in safeguards to avoid harassment of the customer. For example, decision by a bank to close an account should be taken at a reasonably high level after giving due notice to the customer explaining the reasons for such a decision;

v. Circumstances, in which a customer is permitted to act on behalf of another person/entity, should be clearly spelt out in conformity with the established law and practice of banking as there could be occasions when an account is operated by a mandate holder or where an account is opened by an intermediary in fiduciary capacity and

vi. Necessary checks before opening a new account so as to ensure that the identity of the customer does not match with any person with known criminal background or with banned entities such as individual terrorists or terrorist organisations etc.

b) The increasing complexity and volume of financial transactions necessitate that customers do not have multiple identities within a bank, across the banking system and across the financial system. This can be achieved by introducing a unique identification code for each customer. In this regard, a Working Group constituted by the Government of India has proposed the introduction of unique identifiers for customers across different banks and Financial Institutions for setting up a centralized KYC Registry. Banks should allot Unique Customer Identification Code (UCIC) to all their customers while entering into any new relationships for individual customers. Similarly, existing individual customers should be allotted unique customer identification code by March 31, 2014. The UCIC will help banks to identify customers, track the facilities availed, monitor financial transactions in a holistic...

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