Know Your Customer – Basics | AML- KYC Compliance Tutorial

KYC (Know Your Customer) – Basics

KYC means Know Your Customer. It check is the mandatory process of identifying and verifying the identity of the client when opening an account and periodically over time.

In section 5 (b) of the Banking Regulation Act, 1949, “Banking” is defined as “accepting, for the purpose of lending and investments, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise”

Definition of Customer for KYC 

For the purpose of KYC policy, a ‘Customer’ is defined as

• A person or entity that maintains an account and/or has a business relationship with the bank;
• 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 the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

Types of Customers

• Individuals
• Individuals (Joint account)
• Individuals (Minors)
• Executors & Administrators
• Proprietorship/Partnership Firms
• Joint Stock Companies
• Hindu undivided family
• Trusts, Societies & Associations
• Clubs & Self Help Groups
• Government Departments & Municipal Bodies

Banker-Customer Relationship

• On opening of an Account, a banker customer relationship is established.
• An account is a contract between the bank and the customer.
• The banker agrees to provide banking services as per the terms and conditions specified by it and the customer agrees to avail of the service and conduct the account according to the terms and conditions and also the laws of the land and regulations of the banking regulator.
• The legal relationship between a banker and a customer varies with the nature of service rendered by the bank.

Bank and customer have different relationship depending on the kind of service the bank is providing to the customer. Following are the various relationships that may be formed between a customer and the banker based on the products and services availed by the customer:

Service	Relationship	Relationship
	Bank	Customer
Loans	Creditor	Debtor
Deposits	Debtor	Creditor
Pledge of Security	Pledgee	Pledger
Collection	Agent	Principal
Remittance	Fiduciary Agent	Principal
Distribution	Agent	Customer
DeMat Account	Agent	Customer
Safe Deposit Locker	Lessor	Lessee

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