A KYC (Know Your Customer) analyst’s main responsibilities include reviewing new customer account documentation, assessing high-risk accounts, and examining new customer procedures and guidelines. In the company where they work, they also track consumer behavior patterns and research market trends.
KYC Policy refers to the framework established by financial institutions in compliance with regulatory guidelines to ensure that they properly verify the identity and background of their customers. KYC policy is mandatory for banks, financial institutions, and other regulated entities as per the RBI’s KYC Master Direction and the Prevention of Money Laundering Act (PMLA), 2002.
Pooled accounts refer to accounts in which funds from multiple customers or entities are combined or “pooled” into a single account. These accounts are typically used by intermediaries or service providers, such as brokers, payment aggregators, or fund managers, to manage and process funds on behalf of their clients.
Some key parameters for Enhanced Due Diligence (EDD) include:
Customer Profile: Politically Exposed Persons (PEPs), non-residents, high-net-worth individuals.
Nature of Business: Cash-intensive industries, shell companies, cryptocurrency dealings.
Geography: Customers from high-risk or sanctioned jurisdictions.
Transaction Patterns: Large, frequent, or unusual transactions, cross-border dealings.
Source of Funds: Unclear or suspicious origins of wealth.
Purpose of Relationship: Vague account purposes, involvement of offshore entities.
Ownership and Control: Complex ownership structures, difficulty identifying Ultimate Beneficial Owners (UBOs).
The Customer Acceptance Policy outlines the criteria for accepting customers, including risk categorization and verification of identity, ensuring compliance with regulatory guidelines.
The Customer Identification Procedure (CIP) involves verifying the customer’s identity and address through valid documents like Aadhaar, PAN, Passport, and conducting due diligence based on the risk profile.
Suspicious transactions are identified by monitoring unusual patterns such as large, frequent, or complex transactions that don’t match the customer’s normal activity or involve high-risk jurisdictions.
A transaction can be suspicious if it involves unusual amounts, appears structured to avoid reporting requirements, originates from high-risk countries, or lacks a clear business purpose.
Name screening involves checking a customer’s or entity’s name against watchlists, sanctions lists, and databases to identify potential links to financial crime, terrorism, or fraud.
A customer includes anyone who opens or maintains an account, conducts financial transactions, or has a business relationship with the institution.
Induction training is provided to new employees to familiarize them with the institution’s KYC/AML policies, procedures, and regulatory requirements.
The Banking Regulation (BR) Act, 1949 governs the regulation and supervision of commercial banking activities in India, including the licensing and functioning of banks.
CTR stands for Cash Transaction Report, which financial institutions submit for cash transactions exceeding a specified threshold, as part of AML compliance.
Customer Identification in KYC involves verifying a customer’s identity through valid documents like Aadhaar, PAN, Passport, or utility bills for address proof. This process ensures that the customer is who they claim to be, helping to prevent fraud and illegal activities like money laundering.
The objectives of KYC are to:
Verify customer identity and address.
Prevent money laundering, fraud, and financial crime.
Assess and mitigate the risks posed by customers.
Comply with legal and regulatory requirements.
Money laundering is the process of concealing the origins of illegally obtained money by passing it through legitimate channels to make it appear lawful.
The stages of money laundering are:
Placement: Introducing illicit money into the financial system.
Layering: Concealing the origins through complex transactions.
Integration: Reintroducing the “cleaned” money into the legitimate economy.
Red flags include:
Large or unusual cash transactions.
Frequent transfers to high-risk countries.
Structuring transactions to avoid reporting limits.
Sudden, unexplained changes in account activity.
AML-KYC professionals are responsible for identifying, monitoring, and reporting suspicious activities. They ensure compliance with regulations, conduct due diligence, and help prevent illegal financial activities through thorough investigation and risk management.
The risk-based approach involves assessing the risk level of each customer or transaction based on factors like customer profile, geography, and transaction type. Enhanced due diligence (EDD) is applied to higher-risk customers, while simplified measures may apply to low-risk ones.
KYC (Know Your Customer) is a process by which banks, financial institutions, and other entities verify the identity, address, and other details of their customers. In India, KYC is mandatory under the Prevention of Money Laundering Act (PMLA), 2002. It helps in:
Preventing money laundering and terrorist financing.
Ensuring that financial transactions are conducted legally.
Identifying and mitigating risks related to identity theft, fraud, and financial crime.
