Money laundering case: Compliance of KYC norms must, says RBI on Cobrapost expose

May 06 2013, 11:58 IST
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RBI today said that its probe into their activities revealed the banks did not follow KYC norms. (Reuters) RBI today said that its probe into their activities revealed the banks did not follow KYC norms. (Reuters)
SummaryICICI Bank, HDFC Bank and Axis Bank revealed the banks did not follow norms.

Amid allegations of money laundering by top three private banks, the RBI today said that its probe into their activities revealed the banks did not follow KYC (know your customer) norms while selling third party products.

"The RBI recently undertook investigations in the light of reported allegations that certain banks were involved in structuring transactions to aid tax evasion and fraudulent transfer of funds. The investigations revealed the need for better regulatory compliance by banks," the central bank said in its annual monetary policy statement.

ICICI Bank, HDFC Bank and Axis Bank were accused of indulging in money laundering both within and outside with an online portal, Cobrapost, claiming the sting operation conducted by it had revealed a scam. The RBI statement, however did not name the banks.

"During the investigations...it was observed that banks are not carrying out customer due diligence as required under KYC/AML/CFT guidelines while marketing and distributing third party products as agents.

"Some banks are also not filing Cash Transaction Reports (CTRs) or Suspicious Transaction Reports (STRs) in such cases, wherever required," RBI said.

RBI advised banks to carry out customer due diligence as a measure of abundant precaution, maintain details of third party products sold and their records and file CTRs and STRs.

RBI observed that in some cases, banks did not have clear segregation of duties of marketing personnel and bank employees were directly receiving incentives from third parties.

Banks have been asked to ensure that their employees do not receive cash/non-cash incentives directly from insurance companies, mutual funds and other third party product providers.

RBI also asked lenders to have a board approved policy to avoid mis-selling and conflict of interest in marketing and distribution of own or third party financial products.

On wealth management services (WMS), it said banks offering the services are exposed to reputational risks on account of mis-selling of products, conflict of interest, lack of knowledge and clarity about products and frauds.

The country's monetary authority also proposes to replace the existing FAQs on KYC/AML/CFT with a comprehensive set of questions and answers by June end.

This is aimed at facilitating understanding of KYC/AML/CFT requirements and compliance in a hassle-free manner.

By June end, the RBI will issue detailed guidelines on marketing and distribution of third party financial products and KYC (know your customer). Draft guidelines on WMC too will be issued during this period.

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