KYC And AML Policy

Introduction

Reserve Bank of India (RBI) has issued guidelines on ‘Know Your Customer’ (KYC) Guidelines -Anti Money Laundering Standards for Non Banking Finance Companies (NBFCs) thereby setting standards for prevention of money laundering activities and corporate practices while dealing with their customers vide Circular Nos.: DNBS (PD) CC No. 34/10.01/2003-04, dated 06-01-2004, DNBS (PD) CC No. 48/10.42/2004-05, dated 21-02-2005, DNBS (PD) CC No. 64/03.10.042/2005-06, dated 07-03-2006.

VFS endeavors to frame a proper policy framework on ‘Know Your Customer’ (KYC) and Anti-Money Laundering measures; The Company is committed for transparency and fairness in dealing with all stakeholders and in ensuring adherence to laws and regulations. VFS ensures that the information collected from the customer for any purpose would be kept as confidential and not divulge any details thereof for cross selling or any other purposes. VFS commits that information sought from the customer is relevant to the perceived risk, is not intrusive, and is inconformity with the guidelines issued in this regard. Any other information from the customer shall be sought separately with his /her consent and after effective rendering of services.

In the last few years, MFIN (Microfinance Institutions Network) and its member MFIs (NBFC-MFIs) have taken a series of steps in developing a robust credit bureau eco-system for microfinance clients. As a result of these efforts, MFIN members MFIs (NBFC-MFIs) are now submitting their client data to Credit Information Companies (CICs) on a weekly basis and using the Credit Information Reports (CIR) for all lending decisions.

However, critical challenges remain, including issues around availability/quality/accuracy of KYC data at the client level and hence accuracy of the CIRs. To address this issue MFIN had undertaken an exhaustive study in the past to parameterize the data quality aspects including KYC documentation across MFIs and geographies. The study and its recommendations were also shared with the members for their inputs.

The findings and recommendation of this study were closely examined by the Task Force on Credit Bureau (TFCB) including a series of interactions with CICs and the Qadit team (who undertook this study). The MFIN Enforcement Committee (EC) has come across several cases of inaccurate/incomplete CIRs due to lack/inaccuracy of standard KYC information by MFIs and/or use of different KYC information by different MFIs.

The challenges of obtaining/capturing KYC documents on a highly standardised basis across geographies and MFIs are fully recognized. However, looking at the facts as stated above, the TFCB has recommended that all MFIN members be required to mandatorily take a minimum of 2 KYC documents from clients, one of them necessarily being either UID (Aadhaar) or Voter ID.

Hence, all MFIN members will be required to take (during loan application process) and capture (in the Passbooks/MIS etc) two KYC documents, one of them necessarily being either UID (Aadhaar) or Voter ID and submit to the Credit Bureaus in the Common Data Format.

The Board in its meeting held on 8thJuly 2014 has accepted the recommendation of the TFCB and asked member MFIs to make changes, as required, in their processes/policies/systems to comply with this requirement by 30thSeptember 2014.MFIN members while lending in 7 North-Eastern States i.e  Arunachal Pradesh,  Assam , Meghalaya , Manipur, Mizoram, Nagaland and Tripura , in the case of un-availability of Aadhaar and Voter ID at the client level, can rely on other documents e.g certificate of residence issued by the local / block / PanchayatCouncillor / officer/ pradhan as a proof of indentify and address.

However, the Company accepts the documents as per the list of acceptable documents for individuals in terms of RBI’s Master Circular on KYC.

Proof of Identity

Aadhaar No (most preferred), Voter’s Identity Card (most preferred)Passport, PAN card, Driving License, Job Card issued by NREGA duly signed by an officer of the State Govt (vi) Identity card (subject to the Company’s satisfaction), Letter from a recognized public authority or public servant verifying the identity and residence of the customer.

Proof of Address

Telephone Bill, Bank Account Passbook, Letter from recognized public authority, Electricity bill, Ration Card

MFIN KYC Standards

  • At least 2 KYC IDs are taken for the client from amongst 4 KYC IDs (Aadhaar, Voter ID, Ration and MNREGA Job Card). Only loans given in Assam and 5 north-eastern states are exempted from this rule.
  • First (or Primary) KYC ID has to be Aadhaar or Voter ID. This means no loan can be given if neither Aadhaar ID nor Voter ID is available. Only loans given in Assam and 5 north-eastern states are exempted from this rule.
  • First (or Primary) KYC ID has to be Aadhaar or Voter ID. This means no loan can be given if neither Aadhaar ID nor Voter ID is available. Only loans given in Assam and 5 north-eastern states are exempted from this rule.
  • Voter ID has to be captured for 90% of the loans disbursed. In addition to 5 north-eastern states, exception on Voter ID is given to
    • Odisha and Assam: Voter ID has to be captured for 90% of the loans disbursed
    • Tamil Nadu: Ration Card is mandatory, and Aadhaar to be captured as per AB data published by MFIN. Voter ID has to be captured for loans where Aadhaar is not captured.
  • If both Aadhaar and Voter ID are not available for a client, secondary KYC document to be captured from Ration Card or MNREGA Job Card
  • Five north-eastern states (Arunachal Pradesh, Meghalaya, Manipur, Mizoram and Nagaland) are exempted from KYC standards and MFIs are required to capture standards KYC documents on best effort basis.

Objectives, Scope and Application of the Anti-Money Laundering (AML) Policy:

The primary objective is to prevent the Company from being used, intentionally or unintentionally, by criminal elements for money laundering activities or terrorist financing activities.

  • To lay down explicit criteria for acceptance of customers
  • To establish procedures to verify the bona-fide identification of individuals/non    individuals for opening of account.
  • To establish processes and procedures to monitor high value transactions and/or transactions of suspicious nature in accounts.
  • To develop measures for conducting due diligence in respect of customers and reporting of such transactions.

An indicative list of Irregular / suspicious transactions from the money laundering point of view are considered by the Company are given below:

  1. Receipt or Payment of cash large sums of cash which have no obvious purpose or relationship to the account holder and / or his business.
  2. Reluctance to provide normal information when opening an account or providing minimal / fictitious information.
  3. Employees leading lavish lifestyles that do not match their known sources of income.

Definition of Customer

For the purpose of VFS, KYC policy a ‘Customer’ means a person define under KYC policy of RBI and any amendment from time to time by RBI which are at present as under:

  • A person or entity that maintains an account and/or has a business relationship with VFS
  • 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
  • Any other person or entity connected with a financial transaction which can pose significant reputation or other risks to PFS, say a wire transfer or issue of high value demand draft as a single transaction

Customer Acceptance Policy (“CAP”)

Customer Acceptance Policy requires all customers to fill in VFS-KYC Form as attached to capture the relevant data for all categories of customers and provide supporting documents as given in the forms as a part of customer identification process / KYC.

The guidelines for Customer Acceptance Policy (CAP) for the company are given below:

  • No account is opened in anonymous or fictitious/ benami name(s).
  • The company shall classify customers into various risk categories and based on risk perception decide on acceptance criteria for each customer category.
  • Accept customers after verifying their identity as laid down in customer identification procedures.
  • While carrying out due diligence the company shall ensure that the procedure adopted shall not result in denial of services to the genuine customers.
  • For the purpose of risk categorization of customer, company shall obtain the relevant information from the customer at the time of account opening.
  • Documentation requirements and other information are collected in respect of different categories of customers depending on perceived risk and keeping in mind therequirements of PML Act, 2002 and guidelines issued by Reserve Bank from time to time.
    The company shall not open an account or close an existing account where the company is unable to apply appropriate customer due diligence measures i.e. the company is unable to verify the identity and /or obtain documents required as per the risk categorization due to noncooperation of the customer or non reliability of the data/information furnished to the company.  For example, decision to close an account shall be taken at a reasonably high level after giving due notice to the customer explaining the reasons for such a decision
  • Necessary checks are done before opening a new account so as 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.

VFS shall periodically update customer identification data after the transaction is completed and review every 6 month.

Monitoring and reporting of Transactions:

Monitoring of transactions will be conducting taking into consideration the risk profile of the account. VFS shall make endeavors to understand the normal and reasonable activity of the customer so that the transactions that fall outside the regular/pattern of activity can be identified, Special attention will be paid to all complex, unusually large transactions and all unusual patterns, which have no apparent economic or visible lawful purpose.

Background of the customer, country of origin, sources of funds, the type of transactions involved and other risk factors shall determine the extent of monitoring. Higher risk accounts shall be subjected to intensify monitoring. VFS carries out the periodic review of risk categorization of transactions/customers and the need for applying enhanced due diligence measures at a periodicity of not less than once in six months.

VFS explores the possibility of validating the new accounts opening application with various watch lists available in public domain, including RBI watch list. After due diligence, any transactions or suspicious nature is duly reported by principal officer to Director, Financial Intelligence Unit-India (FIU_IND).

To ensure monitoring and reporting of all transactions and sharing of information as required under the law for KYC, Board has nominated one Director or duly authorized one senior officer designated as VFS’s Principal Officer with respect to KYC/ AML/ CFT.

Principal Officer for KYC will act independently and report directly to the concerned Director/CMD or to the Board of Directors. The role and responsibilities of the Principal Officer(s) includes overseeing and ensuring overall compliance with regulatory guidelines on KYC/AML/CFT issued from time to time and obligations under the Prevention of Money Laundering Act, 2002, rules and regulations made there under, as amended form time to time.

Closure of Accounts/Termination of Financing/Business Relationship

Where VFS is unable to apply appropriate KYC measures due to non furnishing of information and/or non-operation by the customer, VFS  terminates Financing/Business Relationship after issuing due notice to the customer explaining the reasons for taking such a decision. Such decision is taken with the approval of Chairman & Managing Director or Principal Officer.

KYC for the Existing Accounts

While the KYC guidelines will apply to all new customers, the same would be applied to the existing customers on the basis of materiality and risk. However, transactions in existing customers would be continuously monitored for any unusual pattern in the operation of the accounts.

The policy is subject to revision based on the RBI guidelines and such revisions shall be made on a time to time basis

The policy is subject to revision based on the RBI guidelines and such revisions shall be made on a time to time basis

Last reviewed: By the Board of Directors of the Company in their meeting dated 12th May, 2017