In terms of the provisions of Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, as amended from time to time by the Government of India, Financial Establishments such as, Banks, NBFCs etc. [hereinafter referred to as Regulated Entities (REs)] are required to follow certain customer identification procedures while undertaking a transaction either by establishing an account-based relationship or otherwise and monitor their transactions.
Accordingly, REs obtains PAN and other Officially Valid Documents such as, passport, the driving licence, proof of possession of Aadhaar number, the Voter’s Identity Card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government and letter issued by the National Population Register containing details of name and address and get such information verified from the respective repositories of the Govt., wherever necessary, as the part of their Customer Acceptance Policy in compliance with the “Master Direction – Know Your Customer (KYC) Direction, 2016” issued by the Reserve Bank of India on February 25, 2016, as amended from time to time.
Under Rule 2(1) of the said Rules, the Government of India has establish an entity called Central KYC Records Registry” (CKYCR) to receive, store, safeguard and retrieve the KYC records in digital form of a customer.
Regulated Entities (REs) have been uploading the KYC data pertaining to all individual accounts opened on or after January 1, 2017 on to CKYCR in terms of the provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.
As the CKYCR is now fully operational for individual customers, it has been decided to extend the CKYCR to Legal Entities (LEs) that is to say, various institutions, such as –
an association of persons or a body of individuals, whether incorporated or not,
every artificial juridical person, not falling within any one of the said persons, and
any agency, office or branch owned or controlled by any of the aforesaid persons.
In this regard, the Reserve Bank of India has issued Notification No. RBI/2020-21/80 -DOR.AML.BC. No.31/14.01.001/2020-21 dated 18/12/2020 and also updated Master Direction – Know Your Customer (KYC) Direction, 2016 by Notification No. RBI/DBR/2015-16/18 Master Direction-DBR.AML.BC.No.81/14.01.001/2015-16 on 18/12/2020.
Accordingly, REs shall upload the KYC data pertaining to accounts of LEs opened on or after April 1, 2021, on to CKYCR in terms of Rule 9 (1A) of the PML Rules.
Other Reporting Entities shall upload the same as per the circular/guidelines issued by their respective Regulator in this regard.
REs shall also ensure that in case of accounts of LEs opened prior to April 1, 2021, the KYC records are uploaded on to CKYCR during the process of periodic updation.
CKYCR has issued the legal entity template in their test environment (https://testbed.ckycindia.in/ckyc/index.php) for submission of KYC data of the LEs by the REs. The effective go live date of the legal entity template in CKYCR is April 02, 2021.
Customer Due Diligence (CDD) Measures to be carried out by a Reporting Entity (RE):
In case of Individuals for undertaking CDD, REs shall obtain PAN and necessary OVDs from an individual while establishing an account-based relationship or while dealing with the individual who is a beneficial owner, authorised signatory or the power of attorney holder related to any legal entity as per Chapter VI Part I of the said RBI KYC Master Directions.
As per Chapter VI Part II of the said Master Directions, for opening an account in the name of a sole proprietary firm, CDD of the individual (proprietor) shall be carried out.
In addition to the above, any two of the following documents or the equivalent e-documents there of as a proof of business/ activity in the name of the proprietary firm shall also be obtained:
(a) Registration certificate
(b) Certificate/licence issued by the municipal authorities under Shop and Establishment Act.
(c) Sales and income tax returns.
(d) CST/VAT/ GST certificate (provisional/final).
(e) Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities.
(f) IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT or Licence/certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute.
(g) Complete Income Tax Return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected, duly authenticated/acknowledged by the Income Tax authorities.
(h) Utility bills such as electricity, water, landline telephone bills, etc.
As per Chapter VI Part II of the said Master Directions, CDD Measures for Legal Entities shall be as follows:
? For opening an account of a company, certified copies of each of the following documents or the equivalent e-documents thereof shall be obtained:
(a) Certificate of incorporation
(b) Memorandum and Articles of Association
(c) Permanent Account Number of the company
(d) A resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf
(e) Documents, as specified for Individuals, relating to beneficial owner, the managers, officers or employees, as the case may be, holding an attorney to transact on the company’s behalf.
? For opening an account of a partnership firm, the certified copies of each of the following documents or the equivalent e-documents thereof shall be obtained:
(a) Registration certificate
(b) Partnership deed
(c) Permanent Account Number of the partnership firm
(d) Documents, as specified for Individuals, relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf
? For opening an account of a trust, certified copies of each of the following documents or the equivalent e-documents thereof shall be obtained:
(a) Registration certificate
(b) Trust deed
(c) Permanent Account Number or Form No.60 of the trust
(d) Documents, as specified for Individuals, relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf.
? For opening an account of an unincorporated association or a body of individuals, certified copies of each of the following documents or the equivalent e-documents thereof shall be obtained:
(a) Resolution of the managing body of such association or body of individuals
(b) Permanent Account Number or Form No. 60 of the unincorporated association or a body of individuals
(c) Power of attorney granted to transact on its behalf
(d) Documents, as specified for Individuals, Relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf and
(e) Such information as may be required to collectively establish the legal existence of such an association or body of individuals.
Explanation: Unregistered trusts/partnership firms shall be included under the term ‘unincorporated association’.
Explanation: Term ‘body of individuals’ includes societies.
For opening accounts of juridical persons not specifically covered in the earlier part, such as societies, universities and local bodies like village panchayats, certified copies of the following documents or the equivalent e-documents thereof shall be obtained:
(a) Document showing name of the person authorised to act on behalf of the entity;
(b) Documents, as specified in Section 16, of the person holding an attorney to transact on its behalf and
(c) Such documents as may be required by the RE to establish the legal existence of such an entity/juridical person.
Chapter VI Part IV of RBI Master Direction provides for Identification of Beneficial Owner :
For opening an account of a Legal Person who is not a natural person, the beneficial owner(s) shall be identified and all reasonable steps in terms of sub-rule (3) of Rule 9 of the Rules to verify his/her identity shall be undertaken keeping in view the following:
(a) Where the customer or the owner of the controlling interest is a company listed on a stock exchange, or is a subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.
(b) In cases of trust/nominee or fiduciary accounts whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary is determined. In such cases, satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also details of the nature of the trust or other arrangements in place shall be obtained.
Provisions for On-going Due Diligence as per Chapter VI Part V of said RBI KYC Master Directions :
? REs shall undertake on-going due diligence of customers to ensure that their transactions are consistent with their knowledge about the customers, customers’ business and risk profile; and the source of funds.
? Without prejudice to the generality of factors that call for close monitoring following types of transactions shall necessarily be monitored:
(a) Large and complex transactions including RTGS transactions, and those with unusual patterns, inconsistent with the normal and expected activity of the customer, which have no apparent economic rationale or legitimate purpose.
(b) Transactions which exceed the thresholds prescribed for specific categories of accounts.
(c) High account turnover inconsistent with the size of the balance maintained.
(d) Deposit of third party cheques, drafts, etc. in the existing and newly opened accounts followed by cash withdrawals for large amounts.
The extent of monitoring shall be aligned with the risk category of the customer.
Explanation: High risk accounts have to be subjected to more intensified monitoring.
(a) A system of periodic review of risk categorisation of accounts, with such periodicity being at least once in six months, and the need for applying enhanced due diligence measures shall be put in place.
(b) The transactions in accounts of marketing firms, especially accounts of Multi-level Marketing (MLM) Companies shall be closely monitored.
Explanation: Cases where a large number of cheque books are sought by the company and/or multiple small deposits (generally in cash) across the country in one bank account and/or where a large number of cheques are issued bearing similar amounts/dates, shall be immediately reported to Reserve Bank of India and other appropriate authorities such as FIU-IND.
Periodic updation shall be carried out at least once in every two years for high risk customers, once in every eight years for medium risk customers and once in every ten years for low risk customers as per the following procedure:
(a) REs shall carry out –
(i) CDD, as specified for individuals in Section 16 of the said Directions, at the time of periodic updation. However, in case of low risk customers when there is no change in status with respect to their identities and addresses, a self-certification to that effect shall be obtained.
(ii) In case of Legal entities, RE shall review the documents sought at the time of opening of account and obtain fresh certified copies.
Provided, REs shall ensure that KYC documents, as per extant requirements of the Master Direction, are available with them.
(b) REs may not insist on the physical presence of the customer for the purpose of furnishing OVD or furnishing consent for Aadhaar authentication/Offline Verification unless there are sufficient reasons that physical presence of the account holder/holders is required to establish their bona-fides. Normally, OVD/Consent forwarded by the customer through mail/post, etc., shall be acceptable.
(c) REs shall ensure to provide acknowledgment with date of having performed KYC updation.
(d) The time limits prescribed above would apply from the date of opening of the account/ last verification of KYC.
? In case of existing customers, RE shall obtain the Permanent Account Number or equivalent e-document thereof or Form No.60, by such date as may be notified by the Central Government, failing which RE shall temporarily cease operations in the account till the time the Permanent Account Number or equivalent e-documents thereof or Form No. 60 is submitted by the customer.
Provided that before temporarily ceasing operations for an account, the RE shall give the customer an accessible notice and a reasonable opportunity to be heard. Further, RE shall include, in its internal policy, appropriate relaxation(s) for continued operation of accounts for customers who are unable to provide Permanent Account Number or equivalent e-document thereof or Form No. 60 owing to injury, illness or infirmity on account of old age or otherwise, and such like causes. Such accounts shall, however, be subject to enhanced monitoring.
Provided further that if a customer having an existing account-based relationship with a RE gives in writing to the RE that he does not want to submit his Permanent Account Number or equivalent e-document thereof or Form No.60, RE shall close the account and all obligations due in relation to the account shall be appropriately settled after establishing the identity of the customer by obtaining the identification documents as applicable to the customer.
Explanation – For the purpose of this Section, “temporary ceasing of operations” in relation an account shall mean the temporary suspension of all transactions or activities in relation to that account by the RE till such time the customer complies with the provisions of this Section. In case of asset accounts such as loan accounts, for the purpose of ceasing the operation in the account, only credits shall be allowed.