Know Your Customer (KYC) and Anti Money Laundering ... POLICY CFL.pdf · This document details the guidelines to be followed in establishing KYC process for every client that is taken

Comfort Fincap Limited

Know Your Customer (KYC) and Anti Money Laundering Measures (AML) Policy


KYC Policy SECTION 1: KNOW YOUR CUSTOMER (KYC) & ANTI MONEY LAUNDERING MEASURES (AML) POLICY 1. Preamble The Know Your Customer (KYC) guidelines have been revised by Reserve Bank of India in the context of Anti Money Laundering and Combatting Financing of Terrarism. Know your client before you deal with the client is the fundamental requisite for a financial institution requiring strict adherence to the norms laid down by RBI in this regard. While Comfort Fincap Limited (CFL) follows the same in letter and spirit for client acquisition, which are well documented in the current KYC Policy Manual, a revisit and a comprehensive policy dealing with the various issues involved is found necessary. In this background this policy placed before the Board for approval. A NBFC - SI which does not accept deposits, prima facie, is not exposed to many of the risks to which a large NBFC (especially a deposit taking company) is exposed to. The customer identification process depends on the risk profile of the borrowers Based on the above guiding principle, the KYC norms applicable to the borrowers are adopted at CFL or the Company, which meet the minimum basic requirements and at the same time ensure strict adherence to the regulatory guidelines. 2. Important Issues This document details the guidelines to be followed in establishing KYC process for every client that is taken on board by CFL, recognizing CFL customers’ profile. The type of clients who would have a relationship with CFL as borrowers are detailed in the Loan policy. At minimum, identity and Location of the client is to be established through documents mentioned under para No.4 below. Personal verification through home/office/factory visit is also essential.

2.1. The information collected from the client is to be treated as confidential. 2.2. Client specific information should not be divulged to any other person except to

Credit Bureaus, regulators, industry associations OR such other similar institutions. 2.3. The information, which is relevant, is to be obtained and the same should not be

intrusive. 2.4. Any information other than for the purpose of appraisal and sanction of loan should

be called for from the customer separately with his/her consent. 2.5. KYC norms require periodic review of the profile of the clients as per risk perception.

For “Low risk category” this review shall be undertaken once in five years and in respect of other clients falling under “Medium and High risk” the review shall be undertaken once in two years.


3. Customer Acceptance Norms The majority of customers of CFL fall into “Medium or High risk” category and they are traders, manufacturers, businessmen or persons having their own practice/ professional service. Separate products are devised for each segment of clients. The following norms are accordingly applied for customer acceptance:

3.1. No account shall be opened in anonymous or fictitious/benami names. 3.2. The target borrowers of CFL belong to normally ‘High income” group and are

normally categorized as “Medium or High Risk” clients. Customers shall be classified based on the eligibility criteria for the product and accordingly this also determines the risk perception. However these clients are to be considered as ‘Medium or High risk” clients from a KYC perspective

3.3. To further screen such borrowers, where the business could be a front for banned activities, the Loan Policy defines additional screening procedures, such as taking references of known persons, making a verification/field visit, Calling for CIBIL report, Verification of bank documents of the borrows, taking NOC from banks in case they have already borrowed from banks etc. and also the lists of activities which are not to be financed. These apart, other formal documents such as business licences, tax details, registration certificates etc from the clients are accepted.

3.4. Proposed clients shall be screened before acceptance to ensure that persons with criminal background or belonging to banned entities do not gain access to CFL as borrower. While RBI sends the list of persons belonging to banned entities such as individual terrorists or terrorist organizations etc. CFL will ensure that the clients are screened before establishing a relationship. The references obtained/due diligence done by the officials of CFL should not indicate any criminal track record either for the client or the members of the family ordinarily staying with her/him.

3.5. Should not have been/ nor continue to be engaged in business/activity that are illegal or undesirable and such other activities not desirable to the community’s morale, health etc. All businesses or activities banned by the Law of the Land are treated as exclusions for the purpose of customer acceptance.

3.6. Normally there will not be an occasion for CFL to open a loan account to Politically Exposed Persons. (PEP). PEP are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. Hence, new accounts of PEP shall not be normally opened by CFL. However there may be occasions when a borrower of CFL may become PEP subsequently. CFL shall gather sufficient information on any person/customer of this category having a relationship and check all the information available on the person in the public domain. CFL shall verify the identity of the person and seek additional information about a customer who becomes PEP subsequent to establishing a relationship. The decision to open an account for PEP or the family members or the relatives of PEP shall be taken at the level of CEO/MD. CFL shall also subject such accounts to enhanced monitoring on an ongoing basis. The above norms may also be applied to in respect of the accounts of the family members or close relatives of PEPs. The following norms shall be applied: • CFL shall verify the identity of the person and seek additional information before

accepting the PEP as a customer. These instructions are also applicable to accounts


where PEP is the ultimate beneficial owner. Further, in regard to PEP accounts, it is necessary to have appropriate ongoing risk management procedures for identifying and applying enhanced CDD(customer Due diligence) measures to PEPs, customers who are close relatives of PEPs, and accounts of which PEP is the ultimate beneficial owner.

3.7. The prospective borrowers who provide insufficient or suspicious information are to be treated as “high risk” clients and normally CFL shall not enter into any relationship with such clients. The following categories of persons fall under the category: • A customer who is reluctant to provide complete information regarding the purpose

of the business, prior business relationships, his/her locations. • A customer who is reluctant to reveal details about his/her activities or to provide

basic financial information. 3.8. The customer acceptance norms are subject to regulatory guidelines Issued from

time to time by RBI and also subject to the loan policy of CFL. 4. Customer Identification Procedure The clients who fulfill the norms detailed in Para 3 above and who could be prima facie taken as customers by CFL shall be identified through the loan origination process set by CFL.

4.1. Customer identification: The prospective clients who are to be sanctioned loans have to be identified in a systematic manner before establishing a relationship. This is necessary to ensure that the person with whom the relationship is going to be established is the person who is intended to have relationship with CFL and the basic details given are true and verifiable. The key and principal verification would involve the name of the person, his/her address and his/her identity through photograph. • Customer identification means identifying the customer and verifying his/ her

identity by using reliable, independent source documents, data or information. • Being satisfied means that the CFL must be able to satisfy the competent

authorities that due diligence was observed based on the risk profile of the customer in compliance with the extant guidelines in place.

• The nature of information/documents required for identification process would also depend on the type of customer (individual, proprietary, partnership, company etc.). For customers that are natural persons, CFL shall obtain sufficient identification data to verify the identity of the customer, his/her address/location, and also his/her recent photograph. For proprietary concerns CFL shall obtain other documents to establish that the person alleged to be the proprietor is the one who is really the proprietor and verify his/her registration forms, business license, bank account details etc and satisfy itself. In respect of partnership, companies etc necessary documents prescribed in this document shall be obtained.

• CFL shall accept any one or more of the following original documents to establish the identity of the client i.e. legal name or any other names used. The original documents shall be presented by the prospective clients along with a photocopy for identification.

a. Passport b. PAN card c. Voter’s Identity Card d. Driving license


e. Letter issued by Unique Identification Authority of India (UIDAI) containing details, name address and Aadhar number.

f. Identity card (subject to the CFL’s satisfaction) • The relaxation shown above is an exception and not a rule and is intended to ensure

that genuine known customers are denied loans. CFL expects such cases to be rare and certainly not in favor of accepting many such cases.

• CFL shall accept certain documents mentioned below to establish the correct permanent address of the clients. The original document/s shall be presented for verification along with a photocopy. The term “Permanent correct address” means the address at which a person usually resides and can be taken as the address as mentioned in the document accepted by the CFL for verification of the address of the customer. While some of the documents mentioned in para 4.1.4. may contain the address also, viz., 1) Passport, 2) Pancard, 3) Voter’s ID, 4) Driving License, 5) Letter issued by UIDAI, such documents may be accepted as proof of permanent address also provided the address given by the client in the account opening form/client information form is same. In such cases separate additional documents to establish permanent address are not required. There is a possibility that the client would have shifted the residence subsequently. In such cases, there is a need to obtain additional documents to establish the present address of the client. Such document may comprise any one or more of the following:

a. Telephone Bill b. Bank account statement c. Electricity Bill d. Ration Card e. Rental/Lease Agreement f. Housing Society Bill g. Gas Connection h. Letter from any recognized public authority ( it would include

Corporation councilor, MLA, MP) i. Where an electricity bill or telephone bill is not in the name of the

proposed client but is in the name of a close relative of the proposed borrower, viz the spouse, son, daughter and parents etc. who live with their husband, father/mother and son, such cases should not be concluded as having no proof of address and denied a relationship. In such cases obtain an identity document and a utility bill of the relative with whom the prospective customer is living along with a declaration from the relative that the said person (prospective customer) wanting to open an account is a relative and is staying with him/her. In all such cases it is prudent to obtain supplementary evidence such as a letter received through post for further verification of the address.

j. Any other document to the satisfaction of CFL viz. LIC Premium Receipt, Sales Tax IT Proof, Marriage Certificate, etc.

• Accounts of Proprietary concerns In the event that a loan is to be given in the name of a proprietary concern, apart from obtaining necessary documents as prescribed for customer identification and address verification of the proprietor, additional documents (any 2) as prescribed by RBI and as mentioned below shall have to be obtained:

a. Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern), certificate/license issued by the Municipal authorities under Shop & Establishment Act,


sales and income tax returns, CST / VAT certificate, certificate / registration document issued by Sales Tax / Service Tax / Professional Tax authorities, License issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, etc.

b. Any registration / licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/ Department. IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT may also be accepted as an identity document for opening of account.

c. The 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.

d. Utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern

e. Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.

Accounts of Partnership firms: In respect of partnership firms, the legal name, address, Of all partners and their addresses, telephone numbers of the firm and partners are to be ascertained apart from other steps to be taken as usual. The documents viz., Registration certificate if registered, partnership deed, power of attorney granted to a Partner or employee of the firm, any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses, telephone bill/s in the name of the partner/s.

Accounts of companies - Name of the company - Principal place of business - Mailing address of the company - Telephone/Fax Number

(i) Certificate of incorporation and Memorandum & Articles of Association (ii) Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account (iii) Power of Attorney granted to its managers, officers or employees to transact business on its behalf (iv) Copy of PAN allotment letter (v) Copy of the telephone bill

5. Monitoring of Transactions The guidelines of RBI and AML require close monitoring of transactions in the normal course. Since the credit facilities extended by CFL are in the form of loan accounts, there is no scope for the borrowers to operate such accounts like savings or current accounts. In view of this monitoring of transactions does not arise. The accounts are monitored normally from the angle of timely repayment or for follow up of overdue installments.


6. Role of Internal Audit Internal Audit has an important role in evaluating and ensuring adherence to the KYC policies and procedures. The internal auditors should be well-versed in such policies and procedures. Concurrent/ Internal Auditors should specifically check and verify the application of KYC procedures and comment on the lapses observed in this regard. The compliance in this regard is put up before the Audit Committee of the Board on quarterly intervals. 7. Risk Management and Other Important Issues

7.1 Product Team shall ensure that further guidelines if any received from RBI in this regard is implemented immediately. The commercial team shall ensure that before opening the account, the norms are strictly adhered to. The concerned officials shall be given adequate training in KYC procedures.

7.2 The Compliance Department should provide an independent evaluation of the CFL’s policies and procedures, including legal and regulatory requirements.

7.3 Audit officials who undertake internal audit shall also be thorough with the KYC norms to enable them to discharge their duties effectively. It is crucial that all those concerned fully understand the rationale behind the KYC policies and implement them consistently.

7.4 The AML (Anti Money Laundering) provisions are not applicable normally as CFL is a non-deposit taking company. Except the loan accounts, the borrowers shall not have any deposit or operative accounts with CFL and hence money laundering attempts in such a scenario is remote.

7.5 At the time of opening an account if it is observed that name of the prospective borrower is similar to the name appearing in the list circulated by RBI, then such information has to be immediately reported in the formats to the Director, FIU-ID.

7.6 CFL shall ensure that its accounts in banks are not used for the purpose of money laundering in any manner specified in the Act. This is done through reconciliation of all bank accounts by Finance Department on a periodic basis, at least monthly.

8. Suspicion of Money Laundering/Terrorist Financing With a view to prevent CFL from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing, it is necessary that whenever there is suspicion of money laundering or terrorist financing or when other factors give rise to a belief that the customer does not, in fact, pose a normal credit risk such persons shall not be taken as customers of CFL 9. Principal Officer In terms of RBI instructions, a NBFC shall appoint a senior management officer to be designated as Principal Officer and the role and responsibilities of the Principal Officer shall include the following:

9.1. Monitoring and reporting of all transactions 9.2. Sharing of information as required under AML Act 9.3. Will maintain close liaison with enforcement agencies, banks and any other

institution which are involved in the fight against money laundering and combating financing of terrorism.


9.4. Overseeing and ensuring overall compliance with regulatory guidelines on KYC/AML/CFT issued from time to time and obligations under the Prevention of Money Laundering Act, 2002, rules and regulations made there under, as amended form time to time.

9.5. With a view to enable the Principal Officer to discharge his/her responsibilities, it is necessary that the Principal Officer and other appropriate staff should have timely access to customer identification data and other CDD (Client Due Diligence) information, transaction records and other relevant information. Further CFL should ensure that the Principal Officer is able to act independently and report directly to the senior management or to the Board of Directors.

9.6. Though the RBI has mandated the appointment of a Principal Officer for all NBFCs, most of the functions supposed to be done by the PO are not applicable to CFL as it is a non-deposit taking Hence most of the provisions contained in AML are not applicable in the normal course except reporting and dealing with fake currency notes which may land in our office while making cash recoveries from clients. The reports in this regard as directed by RBI (covered under para 10 below) has to be sent to:

Director, FIU-IND, Financial Intelligence Unit-India, 6th Floor, Hotel Samrat, Chanakyapuri, New Delhi-110021

10. Forged or Fake Currency Notes

10.1. All cash transactions, where forged or counterfeit Indian currency notes have been used as genuine should be reported by the Principal Officer to FIU-IND immediately in the format (Counterfeit Currency Report – CCR) as per Annex-II to Master Circular on KYC & AML issued by RBI (RBI/2012-13/34 DNBS (PD) CC No.285 /03.10.42/ 2012- 13 July 2, 2012) . Electronic data structure has been furnished in Annex-IV to the said RBI Circular to enable CFL to generate electronic CCRs once such capabilities are established.These cash transactions should also include transactions where forgery of valuable security or documents has taken place and may be reported to FIU-IND in plain text form. The said formats are marked as Annexure I & II respectively.

10.2. Annexure I pertains to Counterfeit Currency Report (CCR) to be prepared by each branch in respect of counterfeit currency detected by them. Such report shall be sent to HO immediately on detection. –Since CFL does not have any branches this is not applicable -

10.3. Annexure II pertains to the consolidated reports of CCR (Annexure I) to be submitted by the principal officer. Annexure II shall be submitted to The Director, FIU-IND along with Annexure I. Annexure I & II shall be submitted to the Director FIU-IND, New Delhi not later than seven working days from the date of occurrence of such transactions.

10.4. There is a possibility that during recovery of dues, CFL may happen to receive forged or fake currency notes. Fake notes may also be received while drawing cash from banks or detected by bank officials at the time of deposit of cash by our branches.


10.5. The officials who’s job is to receive cash should be trained to scan through the currency notes tendered and at least high denomination notes viz Rs.50/- and above so that at the acceptance level itself the same may be prevented. In the event of such notes gaining entry in to the system, the same has to be reported to the FIU-IN as mentioned in paragraph 9.6 above. It is mandatory to maintain proper record of transactions of fake currency notes and the same is furnished under para 12.

11. Know Your Employee KYC norms/AML standards/CFT measures have been prescribed to ensure that criminals are not allowed to misuse the banking/financial channels. Apart from customers accepted by CFL, the rules are applicable to the employees of CFL also hence; RBI advised that adequate screening mechanism is put in place by all NBFCs as an integral part of their recruitment/hiring process of personnel. In this regard, the following process is to be adopted in case of all recruitments;

11.1. The prospective employee shall fulfill the norms for his/her cadre. 11.2. If employed already elsewhere, a confidential information about the employee shall

be obtained from the previous employer. Such information shall contain the details covering the following:

a. The character and behavior b. His/her capabilities c. Whether there was any occasion to take disciplinary action against the

said employee. d. Whether any criminal case against the employee is pending or

contemplated? e. Overall assessment and his/her suitability.

11.3. Reasons for leaving the job. 11.4. Relieving letter from the previous employer. 11.5. Reference from two responsible persons who knows the employee well 11.6. In case the person is not employed, then reference from the teacher or Lecturer

where the person has studied last apart from taking the steps mentioned under para 10.6 and 10.7

11.7. Verifying original Certificates by an authorized staff at CFL. 12. Preservation of Information and Maintenance of Preservation of Records The following information and records are to be preserved and maintained as per the directives of AML Act and as advised by RBI in this regard.

12.1. Information to be preserved: Except fake currency notes other transactions

mentioned in the AML Act are not applicable to CFL as CFL in engaged only in lending. The following information in respect of fake currency notes detected shall be preserved:

a. The nature of the transactions b. The amount of the transaction and the currency in which it was

denominated. c. The date on which the transaction was conducted; and d. The parties to the transaction.

12.2. Maintenance and Preservation of records: The following records shall be maintained and preserved by CFL for the periods mentioned. CFL shall take appropriate steps to


evolve a system for proper maintenance and preservation of account information in a manner that allows data to be retrieved easily and quickly whenever required or when requested by the competent authorities.

a. CFL shall maintain for at least ten years from the date of cessation of transaction between CFL and the client, all necessary records of transactions, which will permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of persons involved in criminal activity.

b. CFL shall ensure that records pertaining to the identification of the customer and his/her address (e.g. copies of documents like passports, identity cards, driving licenses, PAN, utility bills etc.) obtained while opening the account and during the course of business relationship, are properly preserved for at least ten years after the business relationship is ended. The identification records and transaction data shall be made available to the competent authorities upon request.

13. Review of Policy The policy shall be reviewed in the normal course once in two years. However, the policy may be reviewed in between subject to changes if any announced by RBI or based on the internal need or experience of CFL. ANNEXURE I ANNEXURE I (1 of 2) For Comfort Fincap Limited SD/- Director


ANNEXURE I (2 of 2)


ANNEXURE II ANNEXURE II (1 of 2)


ANNEXURE II (2 of 2)

Know Your Customer (KYC) and Anti Money Laundering ... POLICY CFL.pdf · This document details the guidelines to be followed in establishing KYC process for every client that is taken

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