KYC - it's a common sense actually

KYC : It is not whether you should or should not  Know Your Customer but it is How! And I will let you Keep Your Counsel

KYC is just a fancy acronym for Knowing Your Customer. It is coined mainly by the US legislation such as Bank Secrecy Act, 1970 and later reinforced by the Patriot Act, 2001. Effective KYC ensures that the customers of banks and Financial Institutions do not remain anonymous or worse fictitious. It is a major and a very effective tool to prevent money laundering and terrorist financing. Central banks and the Financial Institutions (FIs) around the world have adopted the KYC policies vigorously in the aftermath of 9/11. 

I was conducting a seminar with the constables and officers of a Cyber Security Cell of Mumbai Police recently.  After my lecture a constable asked me whether it is sufficient to collect all the correct proofs and not use common sense at all. Puzzled I asked him to elaborate. He narrated the case of a fraud his cell was investigating. A person opened an account with a bank at its Dadar branch in central Mumbai with a residence proof of Vasai. Vasai is a sleepy suburb of the Mumbai Metropolitan Region about 55 km away from Dadar. This gentleman had received money into his account through a cyber crime, withdrawn it and simply disappeared. The constable wondered why would a branch manager not ask the customer before opening an account 55 kilometer away from where the customer resided when there were at least a dozen branches of that bank between Vasai and Dadar.

And this one takes the cake. A friend of mine had rented his place to a bank to run its ATM. He had also taken a mortgage from that bank for which he was paying his installments regularly. One day the branch manager of a branch where he maintains the account asked him submit a copy of his PAN card*. When my friend protested that he had already submitted it thrice already, when he opened the bank account, took the mortgage and rented his own place the bank to run its ATM. The branch manager apologetically said he was sorry he was just following the KYC guidelines.

Now I must ask the obvious question. Is collecting a copy of the PAN card 4^th time when an FI has 3 copies of the same card already in its record or opening an account of a customer residing 12 branches away, same as knowing your customer? I will keep my own counsel on this one.   

* PAN  is a  Permanent Account Number and it is allotted by the Income Tax Department of the Ministry of Finance in India.

(All views are personal)

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