Banks not carrying out customer due diligence: RBI

Moneycontrol Bureau

In the wake of alleged money laundering cases, the Reserve Bank of India (RBI) investigation observed that banks were not carrying out customer due diligence as required under KYC norms while selling third party products. At the same time, it proposed a set of measures based on the investigation report already submitted.

The investigation, according to the RBI annual policy statement, has underscored the need for better regulatory compliance by banks as well. The central bank will issue draft guidelines on wealth management services offered by banks by end-June, 2013. Wealth management services (WMS) generally include referral services, investment advisory services (IAS) and portfolio management services (PMS). Detailed guidelines will be issued by end-June 2013.

Key RBI measures in terms of KYC/AML: 

1. Carry out customer due diligence as required under extant KYC/AML/CFT guidelines wherever third party products are sold as agents.
2. Mmaintain details of third party products sold and related records for a period and in the manner as prescribed in the KYC/AML/CFT guidelines
3. File Cash Transaction Reports (CTRs) or Suspicious Transaction Reports (STRs) wherever required, under the extant KYC/AML/CFT guidelines while marketing and distributing third party products as agents.

Other measures:

1. To ensure segregation of the marketing function from the approval/transactional process at bank branches;
2. To ensure that its employees do not receive cash/non-cash incentives directly from insurance companies, mutual funds and other third party product providers;
3.  To have a board approved policy to avoid mis-selling and conflict of interest in marketing and distribution of own or third party financial products.