Reserve Bank of India, in the last few years, has been regularly imposing financial penalties on cooperative banks for violating the all important Know Your Customer (KYC) norms or the Anti-Money Laundering (AML) guidelines. They have been advised by RBI circulars to adhere to the KYC norms diligently, in order to prevent criminal elements from indulging in money laundering or terror financing activities.

Cobrapost’s recent exposes’and CBI’s recent revelation that cooperative banks are allegedly involved in a big way in money laundering activities across the country, are the developments that senior management of these banks should take note of to avoid regulators and investigative agencies eventually knocking on banks’ doors.

Given below are 3 important steps that cooperative banks in India could undertake to be Know Your Customer (KYC) compliant as per RBI norms, outlined in recent circulars. These straight forward steps could be easily undertaken by the banks, every time a new account opening is initiated:

1. Customer On-boarding: Firstly capture as much of customer profile data as it is feasible either through new account opening forms or ideally online. Along with it, upload the scanned images of ID and Address proofs, after verifying these manually with their originals. This is a crucial first step, wherein Know Your Customer (KYC) data and documents are gathered. It is also a step, where an online software application could help in generating RBI recommended Unique Customer Identification Code (UCIC), with or without even having a Core Banking Solution.
2. Screening against Watch-lists: Secondly you need to ensure that terrorists as well as individuals associated with terrorism outfits do not become your customers in the first place and continue to remain there, while carrying out terrorism financing activities. As per RBI’s Combating Financing of Terrorism (CFT) circulars based recommendations, along with mandatory requirements of Unlawful Activities Prevention Act (UAPA) and its amendments, your bank needs to screen your existing and new customers against constantly updating United Nations Sanctions as well as Designated lists. RBI’s prepared lists of loan defaulters, whose most updated versions are maintained by CIBIL, would be other lists that you should screen your new and existing customers against.
3. Politically Exposed Person Search: Final of 3 crucial steps of Know Your Customer (KYC) requires that you determine if any of your new or existing customer is a Politically Exposed Person (PEP). Family members, close relatives and business associates of PEP too classify as PEPs and therefore must be identified. These are high risk customers, whose sources of wealth and funds needs to be established, prior to account opening and approval of the senior management. Ongoing monitoring of their transactions is required and has been emphasized in different circulars, including the master circular, published by RBI.

Cobrapost’s exposes’, CBI’s revelations and RBI ongoing investigations should be reasons enough for cooperative banks to tighten their Know Your Customer (KYC) compliance process, by undertaking above mentioned 3 definitive steps. Cloud based KYC compliance tools adoption could easily ensure RBI mandated regulatory compliance, without any capital expenditure in hardware or software. Unlike larger financial institutions, cloud based compliance solutions are ideally suited for India’s cooperative banks, since only cost that such smaller banks need to incur is highly affordable pay-as-you-go subscription fee.

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