 KYC (Know Your Customer) is a framework for banks

which enables them to know / understand the

customers and their financial dealings to be able to
serve them better.

 Banking operations are susceptible to the risks

of money laundering and terrorist financing.

Therefore, banks are 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
 Reserve Bank of India has advised banks to make the
Know Your Customer (KYC) procedures mandatory
while opening and operating the accounts and has
issued the KYC guidelines under Section 35 (A) of the
Banking Regulation Act, 1949.

 Any contravention of the same will attract penalties

under the relevant provisions of the Act. Thus, the Bank
has to be fully compliant with the provisions of the KYC
procedures.
 Customer?
One who maintains an account, establishes business relationship, on
who’s behalf account is maintained, beneficiary of accounts
maintained by intermediaries, and one who carries potential risk
through one off transaction

 Your? Who should know?

Branch manager, audit officer, monitoring officials, PO.

 Know? What you should know?

True identity and beneficial ownership of the accounts
permanent address, registered & administrative address, sources of
funds, nature of customers’ business etc.
 Opening a new account.
 In respect of accounts where documents as per current KYC
standards have not been submitted while opening the initial
account.
 Opening a Locker Facility where these documents are not
available with the Bank for all the Locker facility holders.
 When the Bank feels it necessary to obtain
information from additional customers based on
existing account. conduct of
 When there are changes to signatories, mandate
holders, beneficial owners etc.
 For non-account holders approaching the Bank for high
value one-off transactions like Drafts, Remittances etc.
 Sound KYC procedures have particular relevance to the
safety and soundness of banks, in that:

1. They help to protect banks’ reputation and the integrity of

banking systems by reducing the likelihood of banks
becoming a vehicle for or a victim of financial crime and
suffering consequential reputational damage;

2. They provide an essential part of sound risk

management system (basis for identifying, limiting and
controlling risk exposures in assets & liabilities
 To prevent banks from being used, intentionally or
unintentionally, by criminal elements for money
laundering 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.

4 key elements of KYC policies

 1) Customer Acceptance Policy;
 2) Customer Identification Procedures;
 3) Monitoring of Transactions; and
 4) Risk management
The Customer Acceptance Policy must ensure that explicit
guidelines are in place on the following aspects of customer
relationship in the bank.

No account is opened in anonymous

Parameters of risk perception are clearly defined.
Documentation requirements and other information to be
collected.
Circumstances, in which a customer is permitted to act on behalf
of another person/entity, should be clearly spelt out
Necessary checks before opening a new account .
Not to open an account or close an existing account where the
bank is unable to apply appropriate customer due diligence
 The policy approved by the Board of banks should clearly
spell out the Customer Identification Procedure to be
carried out at different stages i.e. while establishing a
banking relationship. i.e. while establishing a banking
relationship; carrying out a financial transaction or when
the bank has a doubt about the authenticity/veracity or
the adequacy of the previously obtained customer
identification data.

 Identifying the customer and verifying his/ her identity by

using reliable, independent source documents, data or
information.
 Banks can effectively control and reduce their risk only if
they have an understanding of the normal and
reasonable activity of the customer –to identify
transactions that fall outside the regular pattern of
activity.
However, the extent of monitoring will depend on the
risk sensitivity of the account

 The bank may prescribe threshold limits for a particular

category of accounts and pay particular attention to
the transactions which exceed these limits.
 The Board of Directors of the bank should ensure that an
effective KYC programme is put in place by establishing
appropriate procedures and ensuring their effective
implementation.

 Responsibility should be explicitly allocated within the bank

for ensuring that the bank’s policies and procedures are
implemented effectively.

 Apart from the key elements the other things that a bank
should look into customer education, introduction of new
technologies, applicability to branches outside India and
appointment of principal officer.
 Case : Aug 2012

Two public sector banks and one private bank

were held accountable by the Reserve Bank of
India (RBI), Bangalore, for failure to exercise
due diligence in opening bank accounts that
enabled online fraudsters to hack into the
accounts of genuine customers and walk away
with Rs 6.60 lakh, exposing the lax
implementation of know your customer (KYC)
norms
 The cases were taken up by the RBI ombudsman after the
customers lodged complaints with him; the money trail was
traced to Mumbai and Coimbatore; the fraudsters had
opened accounts with fake employment letters, residence
documents and given fictituous telephone numbers.

 The banks were found guilty and went in for appeal to the
appellate authority (Deputy Governor, RBI) who upheld two
of our verdicts

 In another case, a public sector bank was asked to suspend

its mobile banking services after its security systems were
found to be deficient.
 In all, the ombudsman received 3,486 complaints during
the year compared to 3,470 last year.
-failure to implement commitments made-1,209 .
-followed by those pertaining to credit and debit cards - 732
-other categories included levy of service charges without
prior permission, loans and advances and recovery agent
harassment.
-banks had wrongly rejected applications for education
loans, which were then rectified by the respective banks.

RBI ensures that the grievances are resolved and benefits

are restored to the customers, with occasional cases of
compensation to them.
E-Banking
 Introduction
 E-Banking or Electronic Banking is a major innovation in
the field of Banking.
 Earlier Banking was conducted in a very traditional
manner, there were no such innovations.
 Information revolution led to the evolution of internet ,
which lead to E-Commerce continued by evolution of E-
Banking.
 History of E-Banking

 E-Banking History dates back to 1980s.

 The term online became popular in the late '80s and
referred to the use of a terminal, keyboard and TV
(or monitor) to access the banking system using a
phone line
 Stanford federal credit union was the first who offer
online internet banking services to all of its members
in 1994.
 Later on snapped up by other banks like
Well Fargo, Chase Manhattan and Security First Bank.
 E-BANKING
 Modern banking is virtual banking.
 Virtual Banking means a customer cannot see the bank but
with the help of technology he can conduct the banking
activities anywhere in the world.
 The major types of virtual banking services includes:
1. Automated Teller Machines (ATMs)
2. Smart Cards
3. Phone banking
4. Home banking
5. Internet banking
E-Banking or Internet banking
  Online banking also known as internet
banking, e-banking, or virtual banking, is an
electronic payment system that enables
customers of a bank or other financial
institution to conduct a range of financial
transactions through the financial institution's
website.
Internet banking is a term used to describe
the process whereby a client executes banking
transactions via electronic means. This type of
banking uses the internet as the chief medium
of delivery by which banking activities are
executed. The activities clients are able to
carry out are can be classified to as
transactional and non transactional.
Advantages of E-banking
 E-banking in India
In India, since 1997, when the ICICI Bank first offered internet
banking services, today, most new-generation banks offer the
same to their customers. In fact, all major banks provide e-banking
services to their customers.
Popular services under e-banking in India
• ATMs (Automated Teller Machines)
• Telephone Banking
• Electronic Clearing Cards
• Smart Cards
• EFT (Electronic Funds Transfer) System
• ECS (Electronic Clearing Services)
• Mobile Banking
• Internet Banking
• Telebanking
• Door-step Banking
Further, under Internet banking, the following
services are available in India:
Bill payment – Every bank has a tie-up with different
utility companies, service providers, insurance
 companies, etc. across the country. The banks use
these tie-ups to offer online payment of bills
(electricity, telephone, mobile phone, etc.). Also,
most banks charge a nominal one-time registration
fee for this service. Further, the customer can create
a standing instruction to pay recurring bills
automatically every month.
Funds transfer – A customer can transfer
funds from his account to another with
the same bank or even a different bank,
anywhere in India. He needs to log in to
his account, specify the payee’s name,
account number, his bank, and branch
along with the transfer amount. The
transfer is effected within a day or so.
 Investing – Through electronic banking, a
customer can open a fixed deposit with the
bank online through funds transfer. Further,
if a customer has a demat account and a
linked bank account and trading account, he
can buy or sell shares online too.
Additionally, some banks allow customers
to purchase and redeem mutual fund units
from their online platforms as well.

Shopping – With an e-banking service,

a customer can purchase goods or
services online and also pay for them
using his account. Shopping at his
fingertips.
Real-Time Gross Settlement (RTGS)
The term real-time gross
settlement (RTGS) refers to a
funds transfer system that allows for
the instantaneous transfer of money
and/or securities. RTGS is the
continuous process of settling
payments on an individual order basis
without netting debits with credits
across the books of a central bank.
Once completed, real-time gross
settlement payments are final and
irrevocable. In most countries, the
systems are managed and run by
their central banks.
National Electronic Funds Transfer
(NEFT)
National Electronic Funds Transfer (NEFT) is a payment system
that facilitates one-to-one funds transfer. Using NEFT, people can
electronically transfer money from any bank branch to a person
holding an account with any other bank branch, which is participating
in the payment system. Fund transfers through the NEFT system do
not occur in real-time basis and the fund transfer settles in 23 half-
hourly batches.
Immediate Mobile Payment Services(IMPS )
Immediate Mobile Payment Services(IMPS) is a real-time instant
inter-bank funds transfer system managed by National payment
corporation of India. IMPS is available 24/7 throughout the year
including bank holidays, unlike NEFT and RTGS.

NEFT, RTGS and IMPS payment systems were introduced to offer

convenience and flexibility to the account holders. To use these
online fund transfer services, the remitter must have the basic bank
account details of the beneficiary. The bank account details include
the beneficiary’s name and bank’s IFSC. Though all the three
payment systems are used for funds transfer, they exhibit a few
differences.

https://www.paisabazaar.com/banking/difference-between-neft-
rtgs-imps/
 The Society for Worldwide
Interbank
Telecommunication (SWIFT),
Financial
SWIFT
legally S.W.I.F.T. SCRL, provides a
network that enables financial
institutions worldwide to send and • Society for Worldwide Interbank
receive information about financial
Financial Telecommunications
transactions in a secure, standardized
and reliable environment. (SWIFT) is a member-owned
SWIFT also sells software and cooperative that provides safe and
services to financial institutions, much secure financial transactions for
of it for use on the SWIFTNet network, its members. 
and ISO 9362 Business Identifier Codes • This payment network allows
(BICs, previously Bank Identifier Codes), individuals and businesses to take
popularly known as "SWIFT codes". electronic or card payments even
if the customer or vendor uses a
different bank than the payee.
• SWIFT works by assigning each
member institution a unique ID
code that identifies not only the
bank name but country, city, and
branch.
Inside a SWIFT Transaction
SWIFT is a messaging network that financial institutions use to securely
transmit information and instructions through a standardized system of
codes. 
SWIFT assigns each financial organization a unique code that has either
eight characters or 11 characters. The code is interchangeably called the
bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code. To
understand how the code is assigned, let’s look at Italian bank UniCredit
Banca, headquartered in Milan. It has the 8-character SWIFT code
UNCRITMM.

First four characters: the institute code (UNCR for UniCredit Banca)
Next two characters: the country code (IT for the country Italy)
Next two characters: the location/city code (MM for Milan)
Last three characters: optional, but organizations use it to assign codes to
individual branches.
 SWIFT does not facilitate funds transfer: rather,
it sends payment orders, which must be settled
by correspondent accounts that the institutions
have with each other. Each financial institution, to
exchange banking transactions, must have a
banking relationship by either being a bank or
affiliating itself with one (or more) so as to enjoy
those particular business features.
Who Uses SWIFT?
In the beginning, SWIFT founders designed the network to
facilitate communication about Treasury and correspondent
transactions only. The robustness of the message format design
allowed huge scalability through which SWIFT gradually expanded
to provide services to the following:
• Banks
• Brokerage Institutes and Trading Houses
• Securities Dealers
• Asset Management Companies
• Clearing Houses
• Depositories
• Exchanges
• Corporate Business Houses
• Treasury Market Participants and Service Providers
• Foreign Exchange and Money Brokers
Services Offered by SWIFT
Applications
SWIFT connections enable access to a variety of applications, which include real-time
instruction matching for treasury and forex transactions, banking market infrastructure
for processing payment instructions between banks, and securities market
infrastructure for processing clearing and settlement instructions for payments,
securities, forex, and derivatives transactions.13
Business Intelligence
SWIFT has recently introduced dashboards and reporting utilities which enable the
clients to get a dynamic, real-time view of monitoring the messages, activity, trade
flow, and reporting.14 The reports enable filtering based on region, country, message
types, and related parameters.
Compliance Services
Aimed at services around financial crime compliance, SWIFT offers reporting and
utilities like Know Your Customer (KYC), Sanctions, and Anti-Money Laundering (AML).
Messaging, Connectivity, and Software Solutions
The core of the SWIFT business resides in providing a secure, reliable, and scalable
network for the smooth movement of messages. Through its various messaging hubs,
software, and network connections, SWIFT offers multiple products and services which
enable its end clients to send and receive transactional messages.
DEFINITION OF MONEY LAUNDERING
 Money laundering

•The word “laundry”

literally means
“cleaning”
•Metaphorically, money
laundering refers to
“cleaning on money”
Money laundering

“Any financial transaction

which generates an asset or
a value as the result of an
illegal act.”
Another definition:

 Money laundering is the practice of engaging

in financial transactions in order to conceal the identity,
source, and/or destination of money,
and is a main operation of the underground economy.
According to Swiss Bank:
 Money laundering is a process whereby the origin of funds
generated by illegal means is concealed (drug trafficking,
gun smuggling, corruption, etc.)
Money laundering includes:

 Drug Trafficking
Extortion
Corruption
 Fraud
History/Background:
 Terrorist financing, although only one aspect of
money laundering, has become a critical concern
following the events of September 11, 2001.
 The international dimension of money laundering
was evident in a study of Canadian money
laundering police files. They revealed that over 80
per cent of all laundering schemes
had an international dimension.
GLOBAL MONEY LAUNDERING
How much money is laundered every year?
 Since money laundering is an illegal activity therefore
one can only estimate the amount of money laundered
every year.
 The International Monetary Fund, for example, had
stated in 1996 that the aggregate size of money
laundering in the world could be somewhere between 2-
5% of the world’s gross domestic product
 This is $800 billion - $2 trillion in current US dollars.
PROCESS OF MONEY LAUNDERING
PROCESS OF MONEY LAUNDERING

Placement Layering Integration

 PLACEMENT
Placement refers to the physical disposal of
bulk cash proceeds derived from illegal
activity.
This is the first step of the money-laundering
process and the ultimate aim of this phase is to
remove the cash from the location of
acquisition so as to avoid detection from the
authorities.
 PLACEMENT
This is achieved by investing criminal money into
the legal financial system by opening up a bank
account in the name of unknown individuals or
organizations and depositing the money in that
account.
It may involve use of smurfing techniques
through which the launderers make numerous
deposits of amounts of money that are small
enough to avoid raising suspicion.
 LAYERING
Layering is the movement of funds
from institution to hide their origin.
It consists of putting funds, which have entered
the financial system, through series of financial
operations to mislead potential investigators and to
give the funds the appearance of having legal
origins.
 Again, obscuring the source is the key.
Launderers may purchase expensive items such
as jewelry, yachts, or cars in order to change the
money's form.
 INTEGRATION
Integration refers to the reinsertion of the
laundered proceeds back into the economy in such
a way that they re-enter the financial system as
normal business funds.
The funds may be reintroduced in the economy
through, for instance, the purchase of luxury
items or through investment in assets such as
shares in a company or real estate.
 OBJECTIVES OF MONEY LAUNDERING
 The main objectives of money launderers are thus to
place their funds in the financial system without
arousing suspicion, to move them around, often after a
series of complex transactions crossing multiple
jurisdictions so that it becomes difficult to identify their
original sources, and finally to move the funds back
into the financial and business systems so that they
appear legitimate.
 OBJECTIVES OF MONEY LAUNDERING
 Money laundering is performed systematically and
clandestinely, making it difficult to identify exactly how
much money is involved, what methods are employed
and what the magnitude of the problem is.
 Hide: to reflect
OBJECTIVES the factLAUNDERING
OF MONEY that cash is often introduced to the
economy via commercial concerns which may knowingly or
not knowingly be part of the laundering scheme, and it is
these which ultimately p y prove to be the interface between
the criminal and the financial sector

 Move: clearly explains that the money launderer uses

transfers, sales and purchase of assets, and changes the shape
and size of the lump of money so as to obfuscate the trail
between money and crime or money and criminal.

 Invest: the criminal spends the money: he/she may invest it

in assets, or in his/her lifestyles
CRIMINALS OF MONEY LAUNDERING

Drug Dealers:
Drug dealers usually deal
with large amounts
of cash, making it difficult for
authorities to make a paper
trail.
Large amounts of cash raise
red flags.
CRIMINALS OF MONEY LAUNDERING

Mobsters/
Gang members:
Like drug dealers, these
individuals (in a group form)
perform many
cash transactions while
maintaining safe networks
overseas.
Bad Politicians: With greater access to money and lobbyist
networking, the act of money laundering can seem to be one of
the best way to protect one's assets.

Bad Public Officials: Mainly, anyone in a position of

authority whose actions normally go unquestioned will take
advantage of an opportunity like this

Embezzlers: Cases have proven that people who have taken

money from an employer or their own place of business will
normally partake in activities to hide these newly acquired
assets.
CRIMINALS OF MONEY LAUNDERING

Terrorists:
Terrorists are big in
money laundering.
Terrorist activities
must be financed;
otherwise explosives
and other
weaponry would
not be an
obtainable asset.
CAUSES OF MONEY LAUNDERING
 CAUSES OF MONEY LAUNDERING

 Absence of
legislation
 Evasion of tax
 Increase in profits
 To make black money
appear white money
 Limited risks of
exposure
CUSTOMER SERVICES IN
BANKING
 Customer service means different things in
different industries, but it always boils down to
the same basic elements – providing superior
levels of service to patrons, constituents and
clients.
In the banking industry, where technology
continues to evolve the way we handle personal
and business finances, quality customer care
includes keeping pace with both live and digital
options for handling everything from simple to
complex transactions.
The Banking
Ombudsman
What is banking ombudsman

• The Banking Ombudsman Scheme enables an expeditious and

inexpensive forum to bank customers for resolution of
complaints relating to certain services rendered by banks. The
Banking Ombudsman Scheme is introduced under Section 35 A
of the Banking Regulation Act, 1949 by RBI with effect from
1995.

Who is a banking ombudsman:

The Banking Ombudsman is a senior official appointed by the
Reserve Bank of India to redress customer complaints
against deficiency in certain banking services.
Vision

• To provide an inexpensive, transparent and credible mechanism

ensuring fair treatment of the common person utilizing Banking
services
Goals:

solving of grievances: users of banking services

inexpensive
& fair to improve customer services.

Feedback/suggestions to Reserve Bank:

• About guidelines to banks to improve the level of customer

service &
• to strengthen their internal grievance redressed systems
Create awareness: about Banking Ombudsman Scheme.

To facilitate: Quick and fair (non-discriminatory) redressed

of grievances through use of IT systems, comprehensive

and easily accessible database and enhanced capabilities of

staff through training

• Which are the banks covered under the Banking
Ombudsman Scheme, 2006?
All Scheduled Commercial Banks, Regional Rural Banks
and Scheduled Primary Co-operative Banks are covered under
the Scheme.
Organizational Structure

Deputy
Governor
(Appellate
Authority
Executive Director

Customer Services
Department

Office of the Banking

Ombudsman
Commitments by Banking Ombudsman
• Introduced complaint tracking system(CTS) to solve the
complaints issues as early as possible

• Quick turnaround time

• Inter district mobility of Banking Ombudsman within the state

• Exchange information and post importance decisions on

dedicated blog-sites.

• Indian Banking Associations (IBA)– National Payments

Corporation of India(NPCI) bridge for resolution of ATM
15 OBOs are situated across country:
Ahmedabad
Bangalore
Bhopal
Bhubaneswar
Chandigarh
Chennai
Guwahati
Hyderabad
Jaipur
Kanpur
Kolkata
Mumbai
New Delhi
Patna
Thiruvananth
apuram
Grounds of complaints in
Banking Services
• Forced closure of deposit accounts without due notice or
without sufficient reason.
• Refusal to accept or delay in accepting payment towards
taxes, as required by Reserve Bank/Government.
• Refusal to open deposit accounts without any valid reason for
refusal.
• Complaints from Non-Resident Indians having accounts in
India in relation to their remittances from abroad, deposits
and other bank related matters.
• Non-payment or delay in payment of inward remittances.
• Non-payment or inordinate delay in the payment or collection
of cheques, drafts, bills etc,.
Card related problems:

• Charging Of amount for 'Free' Card,

• Authorization Of Loans Over Phone (oral),

• Wrong Billing,

• Excessive Charges,

• Wrong Debits To Account,

• Non-dispensation /Short Dispensation Of Cash From ATM . etc

Procedure for lodging complaints

• Essential – grievance to be taken up with bank first;

• Aggrieved persons not satisfied by a bank’s service and

its resolution of complaint can apply to the Banking
Ombudsman within one year;

• The case is taken to court or arbitrator to solve

• Complaint in prescribed format or in any other but

incorporating all the required information.

• the complaint is not frivolous in nature;

• the complaint is made before the expiry of the period

of limitation prescribed under the Indian Limitation Act,
• Complaints can be submitted online/ email/in hard copy

• Complaints from individuals/ their except

representatives( advocates)/GOI/RBI
• Form of Complaint
Redressal Process:

Receipt of complaint

Review by BO

Reject
Maintainable
Non Maintainable
• Complaints
Excluded arising out of frauds and forgery and subjudice
cases (Supreme Court’s observation that it would not be
appropriate for BOs to give a finding on forgery or to form an
opinion on cases already referred to courts)
Benefits of the BO scheme

• Prompt and impartial resolution of complaints

• No cost to the customer

• Assessment based on overall fairness, good business practices,

accepted banking law and practice

• Focus on customer education and financial literacy

• Customer Awareness and Empowerment