Know your Customer (KYC) guidelines – accounts of proprietary concerns


Know your Customer (KYC) guidelines – accounts of proprietary concerns

Reserve Bank of India, Department of Banking Operations and Development(DBOD), has issued Know Your Customers(KYC) guidelines regarding Accounts of Proprietary Concerns.

The relevant Notification is RBI/2009-10/362 DBOD.AML.BC.No.80/14.01.001/2009-10, dt.March 26, 2010 addressed to The Chairmen and Chief Executive Officers,

All Scheduled Commercial Banks excluding RRBs/
All India Financial Institutions/Local Area Banks

QUOTE

Dear Sir,

Know your Customer (KYC) guidelines – accounts of proprietary concerns

A reference is invited to Para 2.4(a) of the Master Circular on KYC/AML/CFT/Obligation of banks under Prevention of Money laundering Act (PMLA), 2002 issued to banks vide DBOD.AML.BC.No.2/14.01.001/2009-10 dated July 1, 2009. It has been advised to banks that internal guidelines for customer identification procedure of legal entities may be framed by them based on their experience of dealing with such entities, normal bankers’ prudence and the legal requirements as per established practices. If the bank decides to accept such accounts in terms of the Customer Acceptance Policy, the bank should take reasonable measures to identify the beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it knows who the beneficial owner(s) is/are

2.  For sake of clarity, in case of accounts of proprietorship concerns, it has been decided to lay down criteria for the customer identification procedure for account opening by proprietary concerns. Accordingly, apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, banks / financial institutions  should  call  for and  verify  the  following documents before opening of accounts in the name of a proprietary concern:

i) Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern), certificate/licence issued by the Municipal authorities under Shop & Establishment Act, sales and income tax returns, CST/VAT certificate, certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities, Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, etc.

ii) Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.

4. These guidelines will apply to all new customers, while in case of accounts of existing customers, the above formalities should be completed in a time bound manner and should be completed before December 31, 2010.

5.   Please acknowledge receipt.

UNQUOTE

The highlights are

  • As per DBOD.AML.BC.No.2/14.01.001/2009-10, Banks could formulate internal guidelines for customer identification procedures, basing on the legal requirements and practice.
  • Vide the Notification dt.25/03/2010, RBI, DBOD has laid down the criteria for customer identification procedures for account opening by proprietary concerns.
  • It is to be noted that the Identification documents are a minimum two and these documents are to be in the name of the proprietary concern.

In simple terms Customer Identification Policy can said to be Internal guidelines of the Bank, which enables the Identification of the prospective customer i.e there should be supporting documents to prove that the customer is really what he/she/it claims to be.

The Customer Identification Policy (CIP) is intended to enable the bank to form a reasonable belief that it knows the true identity of each customer.

And how is the Identity established? By proper legally acceptable documents.

In my view, the best Customer Identification documents are those which have a history beyond them eg: Sales Tax Returns, Income Tax Returns

Say if the firm is 5 years old, it means Sales Tax/Income Tax Returns for 5 years can be verified.

This is better than a static document.

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