KYC
1.What is KYC and key elements of KYC? (Interviewer may not ask for whole answer mentioned below, but may ask in bits and pieces)
KYC (Know your customer) is a process of knowing the customer details. KYC process involves six key critical components provided below-
1) Identity and Verification (ID&V) – In this bank collect the identity information of the customer. (If individual, banks collect ID and Address verification document; and if company, bank collects document like Articles of Association, Memorandum of Association and Incorporation Certificate, Beneficiary Ownership Certificate, Recent audited financial statement, for Partnership companies – Partnership deed/ for Trust – Trust deed); to prove legal existence of company; status of the company; date of incorporation; registration number; entity legal name.
2) Customer Profile – In this step, bank identifies (for Company) - ultimate beneficial owner (UBO); - nature of business (including identifying primary supplier and dealers and their operational activities to make sure no sanctions risk involvement); - nature of relationship to be established with the bank (including understanding the amount and volume/ number of expected transaction in a period of time); - SOF & SOW- Identification of source of funds and source of wealth; - Key Individuals or Principals (basically, a CEO, CFO and COO of the company). (for Individual) – Customer type (normal, HNI or PEP); - Employment details; - nature of relationship to be established with the bank; - Identification of source of funds and source of wealth.
3) Screening- In this step, Customer name is screened through three types of screening, 1) Negative media - (Tools used - World Check/ Factiva) – to identify negative news; 2) Sanctions screening (tool used- Actimize) – Customer name is screened against the SDN list; 3) PEP screening (tool used- Actimize) – Customer name is screened against the PEP list.
4) Risk Rating & Acceptance – In this step, Customer risk is determined based on three primary factors, 1) Customer type; 2) Geographical Risk; & 3) Product type & Industry, and is accepted with relevant risk of High, Medium or Low.
5) Monitoring and Investigation – In this step, banks monitor the unusual transactions or pattern, and appropriate investigation is done to understand the purpose of the transactions deviating from the customer KYC profile.
6) Documentation- In this step – Bank documents the finding for the investigation as evidence of investigation performed.
2.What is customer KYC review/ KYC Refresh?
1) Periodic Review and 2) Event based KYC Review. In Periodic review, for Low-risk customer – every 5 years review is performed, for Medium risk customer – every 3 years review is performed, and for High risk customer – every 1 year review is performed. In Event based review/ Event Driven Review – KYC review is performed, whenever customer transactional/ business activity/ geography deviates the KYC of the customer.
3.What are corporate registries, and name a few?
Corporate registries are government website which has centralized information of corporates registered under their jurisdiction. Few corporate registries are as mentioned below –
For India – MCA (Ministry of Corporate Affairs)
For UK – Company House
For US – SOS (Secretary of State) + State name
4.What is EDD and why bank perform EDD?
EDD is Enhanced Due Diligence, which is performed on high-risk customer, to mitigate the higher risk the customer may bring to the bank. The risk is mitigated by doing additional due diligence like, doing site visits to verify the customer existence, verifying banking reference, calling and email on the provided details to check whether they are actually assigned, verifying the financial documents of the entity and all other steps involved in customer due diligence.
5.What is “Ultimate Beneficial Owner” structure threshold percentage for Low, Medium and High-risk customers, while doing KYC profiling?
For Low and Medium risk customers, any UBO holding 25% or more ownership in a company will undergo KYC process. For High-Risk customers, any UBO holding 10% or more ownership in a company will undergo KYC process.
Screening
1.What are Sanctions?
Sanctions are trade and official restrictions imposed to economically disable those who are involved in committing illegal activities and have broken the international law impacting human rights. Sanctions are imposed by global bodies like the UN (United Nations), EU (European Union), Interpol, OFAC (Office of Foreign Asset & Control) in the US, HMT (Her Majesty’s Treasury) in the UK and others.
2.What are the types of Sanctions?
There are three types of sanction screening
1) List/ Target Based Sanctions - list based sanctions will have names of individuals also known as (SDN Specially Designated Nationals), organizations and vessels (mostly ships).
2) Sectoral Sanctions – Sanctions imposed on certain sector of an economy/ country (for example – Financial sector, Defence Sector and Energy Sector of Russia is sanctioned)
3) Comprehensive Sanctions – These are complete sanctions imposed on countries to disable economic strength, by restricting trade relations. Examples of comprehensive sanction countries are, Iran, North Korea, Syria, Cuba, Crimea Region