The Reserve Bank of India outlines detailed responsibilities for banks under the Know Your Customer (KYC) guidelines to ensure compliance, security, and effective customer management. Here’s a closer look:

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1. Regular Updates of Customer Records

Banks must:

• Maintain accurate and up-to-date information about all customers, including periodic KYC updates.
• Categorize customers as low, medium, or high-risk, and monitor accounts more frequently if they are deemed higher risk.
• Ensure adherence to timelines for KYC updates:
• High-risk: Every 2 years.
• Medium-risk: Every 8 years.
• Low-risk: Every 10 years.

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2. Monitoring Transactions

• Implement systems to monitor customer transactions regularly, ensuring activities align with the customer’s known profile.
• Identify transactions that:
• Are unusually large or inconsistent with the customer’s regular behavior.
• Could be suspicious, such as frequent small deposits just below reporting thresholds.
• Submit Suspicious Transaction Reports (STRs) to the Financial Intelligence Unit of India (FIU-IND) promptly when necessary.

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3. Due Diligence

• Conduct detailed Customer Due Diligence (CDD) procedures for specific entities, including individuals, partnerships, companies, trusts, sole proprietorships, etc. This includes verifying identities using government-issued documents such as Aadhaar, PAN cards, or passports.
• Apply Enhanced Due Diligence (EDD) for accounts involving Politically Exposed Persons (PEPs) or for high-risk accounts. For example:
• Verify the source of funds or wealth for such customers.
• Obtain senior management approval before onboarding PEPs or continuing relationships with existing PEPs.

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4. Reporting and Compliance

• File reports regarding large cash transactions, suspicious activities, and international transfers exceeding certain limits.
• Respond to queries from law enforcement and regulatory authorities swiftly by making transaction records available upon request.
• Comply with international agreements and sanctions lists. For example:
• Ensure no accounts are held or opened for entities on terrorist or money-laundering sanction lists.
• Implement freezing or restricting actions on accounts as directed by government orders.

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5. Technological and Procedural Safeguards

• Use advanced systems capable of flagging anomalies in transactions.
• Employ measures like Video-based Customer Identification Process (V-CIP) or digital KYC to verify customers remotely.
• Ensure end-to-end encryption when handling sensitive customer data during KYC processes.

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6. Staff Training and Accountability

• Train employees, especially frontline staff, on KYC and Anti-Money Laundering (AML) requirements to ensure robust compliance.
• Appoint a Principal Officer and Designated Director responsible for overseeing KYC compliance and ensuring all regulatory obligations are met.
• Conduct audits to verify compliance with KYC guidelines and report findings to higher authorities regularly.

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7. Record-Keeping

• Maintain transaction and identification records for a minimum of five years, even after an account is closed.
• Ensure quick retrieval of these records whenever required for investigation or audits.

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Banks play a vital role in maintaining the integrity of the financial system by preventing fraud, money laundering, and other illicit activities.