The Reserve Bank of India (RBI) plans to extend the ambit of its policy on 'Treating Customers Fairly' (TCF) beyond banking products to third-party ones such as insurance and mutual funds. The central bank is expected to soon release some guidelines on this topic. The move comes on allegations that several public and private sector banks were guilty of practices that encouraged money laundering and violated know-your-customer (KYC) norms and anti-money laundering (AML) rules in the sale of gold and other third-party products. "The intent and basic structure for TCF is in place in India for banking products of scheduled banks. However, it is now being considered to extend the TCF structure to third-party products, viz, mutual funds, capital market and insurance products sold by banks and also extending the BOS (banking ombudsman scheme) to non-scheduled banks," RBI said. TCF is a consumer protection policy, designed to address the problem of asymmetric information in the financial services sector. It is a regulatory initiative in which companies are required to consider their treatment of customers at all stages of the product life-cycle, including the design, marketing, advice, point-of-sale and after-sale stages. RBI says it has taken a lead in ensuring banks' customers in India are treated fairly. "Over the years, it has initiated several customer-centric measures and inculcated a culture of treating customers fairly through regulatory and supervisory interventions," the report said. However, in March this year an online media portal, Cobrapost, alleged the country's top three private banks were encouraging money laundering and violating KYC and AML rules.
It then conducted a few more of such 'sting' operations; the videotapes showed other public and private sector banks having similar practices. After these allegations, RBI scrutinised the internal control processes of 39 banks between March and May. The regulator issued showcause notices to 36 of these, on finding lapses in their processes. After considering the lenders' responses, RBI decided to impose a monetary penalty on 31 banks. Subsequently, the central bank also issued guidelines on wealth management services, marketing and distribution of third-party financial products, KYC norms and AML standards. "Based on the thematic reviews and the follow-up action taken, the Reserve Bank has provided a list of actionable issues to banks. It has been felt that inspections and scrutinies have to be more targeted and the focus should be on the results, rather than the mere processes," RBI said. The regulator had also issued a guidance note for the inspecting officers on the areas that should be concentrated on while assessing the adherence to KYC and AML guidelines.