KYC Guide Lines
KNOW YOUR CUSTOMER (KYC) & ANTI MONEY LAUNDERING (AML) POLICY
With reference to the guidelines regarding ‘Know Your Customer’ norms issued by the National Housing Bank wherein Housing Finance Companies (HFCs) are advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of suspicious nature for the purpose of reporting it to appropriate authority, Khush Housing Finance Pvt. Ltd. has adhered to the guidelines of National Housing Bank.
Background: The Recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT) standards have become the international benchmark for framing Anti Money Laundering and combating financing of terrorism policies by the regulatory authorities. Compliance with these standards both by the banks/financial institutions, including HFCs, has become necessary for international financial relationships. The Reserve Bank of India (RBI) has issued revised set of comprehensive.
‘Know Your Customer’ Guidelines to all Non-Banking Financial Companies (NBFCs), Miscellaneous Non-Banking Companies and Residuary Non-Banking Companies in the context of the recommendations made by the Financial Action Task Force (FATF) and Anti Money Laundering (AML) standards and combating financing of terrorism policies by the regulatory authorities and advised all NBFCs to adopt the same with suitable modifications depending on the activity undertaken by them and ensure that a proper policy framework on KYC and AML measures are formulated and put in place with the approval of their respective Boards.
The ‘Know Your Customer’ Guidelines issued by the National Housing Bank for HFCs have been drafted and issued in the above context.
- ‘Know Your Customer’ Standards
- Customer Acceptance Policy (CAP)
- Customer Identification Procedures (CIP)
- Monitoring of Transactions
- Risk Management
- Customer Education
- Introduction of New Technologies
- Appointment of Principal Officer
- Maintenance of records of transactions
- Records to contain the specific information
- Maintenance and Preservation of records
- Reporting to Financial Intelligence Unit-India
Know Your Customer’ Standards
The objective of KYC guidelines is to prevent HFCs from being used, intentionally or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable HFCs to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently. Khush Housing Finance Pvt. Ltd. has framed its KYC policy incorporating the following four key elements:
- Customer Acceptance Policy;
- Customer Identification Procedures;
- Monitoring of Transactions;
- Risk management.
For the purpose of the KYC policy, a ‘Customer’ is defined as:
- A person or entity that maintains an account and/or has a business relationship with Khush Housing Finance Pvt. Ltd.;
- 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 Khush Housing Finance Pvt. Ltd, say, a wire transfer or issue of a high value demand draft as a single transaction.
Customer Acceptance Policy (CAP)
Khush Housing Finance Pvt. Ltd.’s Customer Acceptance Policy, laying down explicit criteria which lay down explicit criteria for acceptance of customers, ensures the following aspects of the customer relationship:
- No account is opened in anonymous or fictitious/benami name(s);
- Customers are all assessed for location of residence, business if any including type of clients and also the mode of transactions and payments (in Khush Housing Finance Pvt. Ltd.’s case, we require payments to be made through ECS unless in an emergency (and in any case given our business – of low ticket size loans – the level of cash handling is very minimal);
- Volume of turnover, social and financial status, etc. to enable categorization of customers into low, medium and high risk (these customers will require very high level of monitoring). Currently given the size of our loans and type of clients we deal with, all our customers are considered low risk;
- Documentation requirements and other information collected in respect of different categories of customers depending on perceived risk and keeping in mind the requirements of Prevention of Money Laundering Act (PMLA), 2002 and guidelines issued from time to time;
- Khush Housing Finance Pvt. Ltd. will not open an account where it is unable to apply appropriate customer due diligence measures, i.e. where Khush Housing Finance Pvt. Ltd. is unable to verify the identity and /or obtain documents required as per the risk categorisation due to non co-operation of the customer or non reliability of the data/information furnished. However, Khush Housing Finance Pvt. Ltd will have suitable built-in safeguards to avoid harassment of the customer.
- Circumstances, in which a customer is permitted to act on behalf of another person/entity, will be clearly spelt out in conformity with the established law and practices, as there could be occasions when an account is operated by a mandate holder or where an account may be opened by an intermediary in a fiduciary capacity,
- Checks against any notified list of the NHB or the RBI any other regulator, before accepting a customer, 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 organizations, etc.
Khush Housing Finance Pvt. Ltd. will prepare a profile for each new customer who may contain information relating to the customer’s identity, social/financial status, nature of business activity, information about his clients’ business and their location, etc. The nature and extent of due diligence will depend on the risk perceived by Khush Housing Finance Pvt. Ltd.. However, while preparing the customer profile, Khush Housing Finance Pvt. Ltd. will seek only such information from the customer which is relevant and is not intrusive. The customer profile will be a confidential document and details contained therein will not be divulged for cross selling or any other purposes.
Given the nature of our business – small ticket loans to low income financially excluded families – we have categorized our customers as low risk. It is highly unlikely that Khush Housing Finance Pvt. Ltd. will have any medium / high risk clients given its focus on the lower income section of society, but for information, examples of customers requiring higher due diligence may include:
- Non-resident customers,
- High net worth individuals,
- Trusts, charities, NGOs and organizations receiving donations,
- Companies having close family shareholding or beneficial ownership,
- Firms with ‘sleeping partners’,
- Politically exposed persons (PEPs) of foreign origin,
- Non-face to face customers,
- Those with dubious reputation as per public information available, etc.
It is important to bear in mind that the adoption of Customer Acceptance Policy and its implementation will not result in denial of Khush Housing Finance Pvt. Ltd.’s services to the general public, especially to those who are financially or socially disadvantaged.
Customer Identification Procedure (CIP)
Khush Housing Finance Pvt. Ltd. will follow clear NHB guidelines on the Customer Identification Procedure to be carried out at different stages, i.e. while establishing a relationship; carrying out a financial transaction or when Khush Housing Finance Pvt. Ltd. has a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data. Customer identification means identifying the customer and verifying his/ her identity by using reliable, independent source documents, data or information.
Khush Housing Finance Pvt. Ltd. will obtain necessary information to establish, to its satisfaction, the identity of each new customer, whether regular or occasional and the purpose of the intended nature of relationship. Khush Housing Finance Pvt. Ltd. would ensure due diligence for compliance as per competent authorities Khush Housing Finance Pvt. Ltd. will obtain sufficient data to verify the identity of the customer, his address/location, and also his recent photograph.
Monitoring of Transactions
Ongoing monitoring is an essential element of effective KYC procedures. Khush Housing Finance Pvt. Ltd. can effectively control and reduce its risk only if it has an understanding of the normal and reasonable activity of the customer so that it can identify transactions that fall outside the regular pattern. However, the extent of monitoring will depend on the risk sensitivity of the account. Since Khush Housing Finance Pvt. Ltd. will not have any deposit accounts, this situation will hardly arise, but Khush Housing Finance Pvt. Ltd. will in any case pay special attention to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose or transactions that involve large amounts of cash inconsistent with the normal and expected activity of the customer. Khush Housing Finance Pvt. Ltd. will put in place a system of periodical review of risk categorization of accounts and the need for applying enhanced due diligence measures.
The Board of Directors of Khush Housing Finance Pvt. Ltd. has ensured that an effective KYC program is in place and has established appropriate procedures and is overseeing its effective implementation. The program covers proper management oversight, systems and controls, segregation of duties, training and other related matters. Responsibility has been explicitly allocated within Khush Housing Finance Pvt. Ltd. to ensure that Khush Housing Finance Pvt. Ltd.’s policies and procedures are implemented effectively.
Khush Housing Finance Pvt. Ltd.’s Board -through its Audit Committee will directly evaluate and ensure adherence to the KYC policies and procedures, including legal and regulatory requirements.
Khush Housing Finance Pvt. Ltd. has already ensured that its front line staff and credit staff are aware that no loan accounts will be created unless the KYC procedures are adhered to completely.
The implementation of KYC procedures requires Khush Housing Finance Pvt. Ltd. to demand certain information from customers, which may be of personal nature, or which has hitherto never been called for. This can sometimes lead to a lot of questioning by the customer as to the motive and purpose of collecting such information. Khush Housing Finance Pvt. Ltd.’s front line staff will therefore personally discuss this with customers and if required, Khush Housing Finance Pvt. Ltd. will also prepare specific literature/ pamphlets, etc. so as to educate the customer on the objectives of the KYC program.
Introduction of New Technologies
Khush Housing Finance Pvt. Ltd. will pay special attention to any money laundering threats that may arise from new or developing technologies including on-line transactions that might favour anonymity, and take measures, if needed, to prevent its use in money laundering schemes.
Appointment of Principal Officer
Khush Housing Finance Pvt. Ltd. has appointed its Managing Director to be designated as ‘Principal Officer’. Per the NHB guidelines, the Principal Officer will be located at the corporate office and will be responsible for monitoring and reporting of all transactions and sharing of information as required under the law. He will maintain close liaison with enforcement agencies, other HFCs and any other institution which are involved in the fight against money laundering and combating financing of terrorism.
Maintenance of records of transactions
As unlikely as it will be in Khush Housing Finance Pvt. Ltd.’s case, due to its focus on lower income families, Khush Housing Finance Pvt. Ltd. has a system of maintaining proper record of transactions prescribed under Rule 3, of the Prevention of Money-Laundering and value of transactions, the procedure and manner of maintaining and verification and maintenance of records of the identity of the clients of the Banking Companies, Financial Institutions and Intermediaries Rules, 2005, as mentioned below:
- All cash transactions of the value of more than rupees ten lakh or its equivalent in foreign currency;
- All series of cash transactions integrally connected to each other which have been valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the aggregate value of such transactions exceed rupees ten lakh;
- All cash transactions were forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable security has taken place;
- All suspicious transactions whether or not made in cash and by way of as mentioned in the rules.
Records to contain the specific information
As per the NHB guidelines, Khush Housing Finance Pvt. Ltd. is required to maintain the following information in respect of transactions referred to in Rule 3 of the PMLA Rules
- The nature of the transactions;
- The amount of the transaction and the currency in which it was denominated;
- The date on which the transaction was conducted;
- The parties to the transaction.
Maintenance and Preservation of records
Khush Housing Finance Pvt. Ltd. has a system for proper maintenance and preservation of account information in a manner that allows data to be retrieved easily and quickly whenever required or when requested by the competent authorities. Khush Housing Finance Pvt. Ltd. will maintain for at least ten years from the date of cessation of transaction between the bank and the client, all necessary records of transactions, both domestic or international, which will permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of persons involved in criminal activity.
Khush Housing Finance Pvt. Ltd. will also ensure that records pertaining to the identification of the customer and his / her address (e.g. copies of documents like passports, identity cards, driving licenses, PAN, utility bills etc.) obtained while opening the account and during the course of business relationship, are properly preserved for at least ten years after the business relationship is ended. The identification records and transaction data will be made available to the competent authorities upon request.
Reporting to Financial Intelligence Unit-India
In terms of the PMLA rules, Khush Housing Finance Pvt. Ltd. will report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND) at the following address:
Financial Intelligence Unit-India,
6 th Floor, Hotel Samrat,
Khush Housing Finance Pvt. Ltd. will ensure that the provisions of PMLA Rules framed and the Foreign Contribution and Regulation Act, 1976, wherever applicable, are adhered to strictly.
A copy of information furnished shall be retained by the Principal Officer for the purposes of official record