Know Your Customer Standards

The revised KYC policy of the broker incorporates the following four elements:

• a. Customer Acceptance Policy (CAP)
• Debt Control: Allocate money toward loan payments and avoid unnecessary borrowing.
• b. Customer Identification Procedures (CIP)
• c. Monitoring of Transactions; and
• d. Risk Management

A customer for the purpose of KYC Policy is defined as:

• 1. A person or entity that maintains an account and/or has a business relationship with the broker.
• 2. One on whose behalf the account is maintained (i.e., the beneficial owner)
• 3. Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors, etc as permitted under the law
• 4. Any person or entity connected with a financial transaction which can pose significant reputational or other risks to the broker, say, a wire transfer or issue of high value demand draft as a single transaction.

A. Customer Acceptance Policy (CAP)

a) The following Customer Acceptance Policy indicating the criteria for acceptance of customers shall be followed in by the broker. The dealers shall accept customer strictly in accordance with the said policy:

No account shall be opened in anonymous or fictitious/benami name(s)

Parameters of risk perception shall be clearly defined in terms of the nature of business activity, location of customer and his clients, mode of payments, volume of turnover, social and financial status etc., to enable categorization of customers into low, medium and high risk called Level I, Level II and Level III respectively; Customers requiring veryhigh level of monitoring e.g., Politically Exposed Persons (PEPs) may be categorized as Level IV.

The dealers shall collect documents and other information from the customer depending on perceived risk and keeping in mind the requirements of AML Act, 2002 and guidelines issued by RBI from time to time.

The dealers shall close an existing account or shall not open a new account where it is unable to apply appropriate customer due diligence measures i.e., branch is unable to verify the identity and/or obtain documents required as per the risk categorization due to non cooperation of the customer or non reliability of data/information furnished to the branch. The dealers shall, however, ensure that these measures do not lead to the harassment of the customer. However, in case the account is required to be closed on this ground, the dealers shall do so only after permission of senior official of their concerned offices is obtained. Further, the customer should be given a prior notice of at least 20 days wherein reasons for closure of his account should also be mentioned.

The dealers shall make necessary checks 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. RBI has been circulating lists of terrorist entities notified by the Government of India so that brokers exercise caution against any transaction detected with such entities. The dealers shall invariably consult such lists to ensure that prospective person/s or organizations desirous to establish relationship with the broker are not in any way involved in any unlawful activity and that they do not appear in such lists.

b) The dealers shall prepare a profile for each new customer based on risk categorization. The broker has devised a revised Composite Account Opening Form for recording and maintaining the profile of each new customer. Revised form is separate for Individuals, Partnership Firms, Corporate and other legal entities, etc. The nature and extent of due diligence shall depend on the risk perceived by the dealer. The dealers should continue to follow strictly the instructions issued by the broker regarding secrecy of customer information. The dealers should bear in mind that the adoption of customer acceptance policy and its implementation does not become too restrictive and should not result in denial of brokering services to general public, especially to those, who are financially or socially disadvantaged.

c) The risk to the customer shall be assigned on the following basis:
Low Risk (Level I):

Individuals (other than High Net Worth) and entities whose identities and sources of wealth can be easily identified and transactions in whose accounts by and large conform to the known profile may be categorized as low risk. The illustrative examples of low risk customers could be salaried employees whose salary structures are well defined, people belonging to lower economic strata of the society whose accounts show small balances and low turnover, Government Departments and Government owned companies, regulators and statutory bodies etc. In such cases, only the basic requirements of verifying the identity and location of the customer shall be met.

Clients who provide all documents at the time of account opening without any delay

• a. Resident of India
• b. Provides income proof
• c. Providing two or more references
• d. Always provides securities and funds in time
• e. No delegation of authority for operation of account

Medium Risk (Level II):
Customers that are likely to pose a higher than average risk to the broker may be categorized as medium or high risk depending on customer's background, nature and location of activity, country of origin, sources of funds and his client profile etc; such as:
• Persons in business/industry or trading activity where the area of his residence or place of business has a scope or history of unlawful trading/business activity.
• Where the client profile of the person/s opening the account, according to the perception of the branch is uncertain and/or doubtful/dubious.
• Any client who cannot be comfortably placed in neither low risk nor high risk category

High Risk (Level III):
The dealers may apply enhanced due diligence measures based on the risk assessment, thereby requiring intensive 'due diligence' for higher risk customers, especially those for whom the sources of funds are not clear. The examples of customers requiring higher due diligence may include

• a. Non-Resident Customers
• b. High Net worth individuals
• c. Trusts, charities, NGOs and organizations receiving donations
• d. Companies having close family shareholding or beneficial ownership
• e. Firms with 'sleeping partners'
• f. Politically Exposed Persons (PEPs) of foreign origin
• g. Non-face to face customers, and
• h. Those with dubious reputation as per public information available, etc.

The persons requiring very high level of monitoring may be categorized as Clients of Special Category (CSC): Such clients include

a. Non-resident client

b. High net worth clients

c. Politically exposed persons of foreign origin

d. Companies having close family shareholdings or beneficial ownership

e. Clients with dubious reputation as per public information available etc.

f. Current/Former head of state, Current or former senior high-profile politicians and connected persons.

g. Trust, Charities, NGOs and organizations receiving donations

h. Non face to face clients

i. Clients with dubious reputation as per public information available etc.

Further client once categorized as low risk client can be later categorized as high risk or vice versa depending on the nature of transactions and client periodical report.

Customer Due Diligence: Measures
New Client Registration: Identify Customer Identity

• a. No account should be opened in benami name /fictitious name
  
• b. Verify the customer's identity using reliable, independent source documents, or information
• c. Customer should be physically present at the time of opening of the account
• d. Verify the identity of the beneficial owner of the customer/or the person on whose behalf a transaction is being conducted.
• e. Don’t open account to clients who does not cooperate to provide basic details.
• f. Don’t open accounts of clients who has ever been convicted of offence involving moral turpitude or any criminal offence or criminal background.
• g. Perform on going scrutiny of the transactions and account throughout the course of business relationship to ensure that the transactions are consistent with the registered intermediary's knowledge of the customer, its business and risk profile, taking into account, where necessary the customer's source of funds.

Customer Identification Procedure (CIP)

Customer identification means identifying the person and verifying his/her identity by using reliable, independent source documents, data or information. The dealers need to obtain sufficient information necessary to establish, to their satisfaction, the identity of each new customer, whether regular or occasional, and the purpose of the intended nature of brokering relationship. Being satisfied means that the dealer is able to satisfy the competent authorities that due diligence was observed based on the risk profile of the customer in compliance of the extant guidelines in place. Besides risk perception, the nature of information/documents required would also depend on the type of customer (individual, corporate, etc). For customers that are natural persons, the dealers shall obtain sufficient identification data to verify the identity of the customer, his address/location, and also his recent photograph. For customers that are legal persons or entities, the dealers shall (i) verify the legal status of the legal person/entity through proper and relevant documents (ii) verify that any person purporting to act on behalf of the legal person/entity is so authorized and identify and verify the identity of that person (iii) understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person. Customer Identification requirements in respect of a few typical cases, especially, legal persons requiring an extra element of caution are given in Annexure I for the guidance of dealers.

If the dealer decides to accept such accounts in terms of the Customer Acceptance Policy, the dealer shall take reasonable measures to identify the beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it knows who the beneficial owner(s) is/are. An indicative list of the nature and type of documents/information that may be relied upon for customer identification is given in Annexure – II.

Monitoring of Transactions
Continuous monitoring is an essential ingredient of effective KYC procedures and the extent of monitoring should be according to the risk sensitivity of the account. Dealers shall pay special attention to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose. Transactions that involve large amount of cash inconsistent with the size of the balance maintained may indicate that the funds are being 'washed' through the account. High risk accounts shall be subjected to intensive monitoring.

The Compliance Department shall ensure adherence to the KYC policies and procedures. Concurrent/Internal Auditors shall specifically check and verify the application of KYC procedures and comment on the lapses if any observed in this regard. The compliance in this regard shall be put up before the Meeting of the Board on quarterly intervals. All staff members shall be provided training on Anti Money Laundering. The focus of training shall be different for frontline staff, compliance staff and staff dealing with new customers.

Risk Management
The broker's KYC policies and procedures covers management oversight, systems and controls, segregation of duties, training and other related matters. For ensuring effective implementation of the broker's KYC polices and procedures, the dealers shall explicitly allocate responsibilities within the branch. The Branch Dealer shall authorize the opening of all new accounts. The dealers shall prepare risk profiles of all their existing and new customers and apply Anti Money Laundering measures keeping in view the risks involved in a transaction, account or brokering/business relationship.

Training encompassing applicable money laundering laws and recent trends in money laundering activity as well as the broker's policies and procedures to combat money laundering shall be provided to all the staff members of the broker periodically in phases.

The Accounts Department shall be empowered to prescribe threshold limits for a particular group of accounts and the dealers shall pay particular attention to the transactions which exceed these limits. The threshold limits shall be reviewed annually and changes, if any, conveyed to dealers for monitoring.