KYC & AML

KNOW YOUR CUSTOMER (KYC) & ANTI MONEY LAUNDERING (AML) POLICY

In compliance with the Circular issued by the RBI regarding ‘Know Your Customer’ guidelines & ‘Anti-Money Laundering Standards’ to be followed by all NBFCs, the following KYC & PMLA policy of the company has been adopted by the Board of Directors of the company.

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

‘Know Your Customer’ Standards

1. The objective of KYC guidelines is to prevent NBFCs from being used, intentionally or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable NBFCs to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently. ORFIL has framed its KYC policy incorporating the following four key elements:

  • Customer Acceptance Policy;
  • Customer Identification Procedures;
  • Monitoring of Transactions; and
  • Risk Management.

2. 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 ORFIL;
  • 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 ORFIL, say, a wire transfer or issue of a high value demand draft as a single transaction.
Customer Acceptance Policy (CAP)
3. ORFIL’s Customer Acceptance Policy, which lays 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 ORFIL’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 PML Act, 2002 and guidelines issued from time to time
  • ORFIL will not open an account where it is unable to apply appropriate customer due diligence measures, i.e. where ORFIL is unable to verify the identity and /or obtain documents required as per the risk categorization due to non co-operation of the customer or non reliability of the data/information furnished. However, ORFIL 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, and
  • Checks against any notified list of the NBFC 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.

4.ORFIL will prepare a profile for each new customer which 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 ORFIL However, while preparing the customer profile, ORFIL 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.

5. Given the nature of our business – small ticket secured loans to low and middle income, informal and financially excluded families – we have categorized our customers as low risk.. It is highly unlikely that ORFIL 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, and
  • 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 ORFIL’s services to the general public, especially to those who are financially or socially disadvantaged.

Customer Identification Procedure (CIP)
6. ORFIL will follow clear NBFC 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 ORFIL 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. ORFIL will obtain sufficient information necessary to establish, to its satisfaction, the identity of each new customer, whether regular or occasional and the purpose of the intended nature of relationship. Being satisfied means that ORFIL must be able to satisfy the competent authorities that due diligence was observed based on the risk profile of the customer in compliance with the extant guidelines in place. Besides risk perception, the nature of information/documents required would also depend on the type of customer (individual, corporate etc). For customers that are natural persons, which will be most of its clients, ORFIL will obtain sufficient identification data to verify the identity of the customer, his address/location, and also his recent photograph. For customers that are legal persons or entities (very unlikely to be a customer except for project finance to construction companies), ORFIL will:

    • verify the legal status of the legal person/ entity through proper and relevant documents;
    • verify that any person purporting to act on behalf of the legal person/entity is so authorized and identify and verify the identity of that person; and
    • understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person

Where ORFIL is unable to apply appropriate KYC measures due to non-furnishing of information and /or non-cooperation by the customer, ORFIL may consider closing the account or terminating the business relationship after issuing due notice to the customer explaining the reasons for taking such a decision.

Monitoring of Transactions
7. Ongoing monitoring is an essential element of effective KYC procedures. ORFIL 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 ORFIL will not have any deposit accounts, this situation will hardly arise, but ORFIL 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. ORFIL will put in place a system of periodical review of risk categorization of accounts and the need for applying enhanced due diligence measures. ORFIL will ensure that a record of transactions in the accounts is preserved and maintained as required in terms of section 12 of the PML Act, 2002 (and the Amended Act, 2009). It will also ensure that transactions of suspicious nature and/or any other type of transaction notified under section 12 of the PML Act, 2002 (and the Amended Act, 2009), is reported to the appropriate law enforcement authority.

Risk Management

8. The Board of Directors of ORFIL 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 ORFIL to ensure that ORFIL’s policies and procedures are implemented effectively. The Board of ORFIL is aware that while all customers will be of low risk profile given the nature of its business, unless belonging to a higher risk profile listed under #5 above and approved as an exception, it will apply various Anti Money Laundering measures keeping in view the risks involved in a transaction, account or business relationship.

9. ORFIL’s Board -through its Audit team will directly evaluate and ensure adherence to the KYC policies and procedures, including legal and regulatory requirements.

10. ORFIL 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.

Customer Education

11. The implementation of KYC procedures requires ORFIL 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. ORFIL’s front line staff will therefore personally discuss this with customers and if required, ORFIL will also prepare specific literature/ pamphlets, etc. so as to educate the customer on the objectives of the KYC program.

Introduction of New Technologies
12. ORFIL 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
13. ORFIL has appointed its Managing Director to be designated as ‘Principal Officer’. As Per the NBFC 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 NBFCs and any other institution which are involved in the fight against money laundering and combating financing of terrorism.

Maintenance of records of transactions
14. Though it will be unlikely in ORFIL’s case, due to its focus on lower income families, ORFIL 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 exceeds rupees ten lakh;
  • all cash transactions where 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.

Information to be preserved

15. As per the NBFC guidelines, ORFIL is required to maintain the following information in respect of transactions referred to in Rule 3:

  • 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; and
  • the parties to the transaction.
Maintenance and Preservation of records
16. ORFIL 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. ORFIL 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. ORFIL 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
17. In terms of the PMLA rules, ORFIL will report information relating to cash and suspicious transactions to the Director, Financial Intelligence

Unit-India (FIU-IND) at the following address:

Director, FIU-IND, Financial Intelligence Unit-India,

6 th Floor, Hotel Samrat,

Chanakyapuri,

New Delhi-110021.

ORFIL will ensure that the provisions of PMLA Rules framed and the Foreign Contribution and Regulation Act, 1976, wherever applicable, are adhered to strictly.

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