Zero tolerance policy on flouting KYC norms in the offing

Banks to face operational curbs, higher penalty for non-compliance

The Reserve Bank of India (RBI) is likely to adopt a zero tolerance policy on Know Your Customer (KYC) and Anti-Money Laundering (AML) norms. The move follows a series of violation of norms by banks, which were identified by the RBI in the recent past.

The regulator also feels that the quantum of penalties for such violations is small. It is currently looking at a proposal to increase this.

Another proposal is to put operational curbs such as not allowing a bank to disburse loans for three months or not allowing them to take part in treasury operations for a limited period. Branch expansion is another area where restrictions could be imposed. The central bank discussed these issues at a recent meeting with chief compliance officers of several south and western India-based banks.

“At present, a small violation of KYC/AML is overlooked by the central bank during inspection. Now, they are saying even if a bank is 99 per cent compliant, one per cent non-compliance will attract penalties. It will be a zero tolerance policy,” said a senior official with a public sector bank.

Banks could also see the monetary penalty rising sharply from the present Rs 5 lakh per violation. Earlier, the thinking in the central bank was to ‘name and shame’ errant banks, rather than impose a heavy penalty.

In 2013, the Banking Regulation Act was amended and gave powers to RBI to impose a penalty of Rs 1 crore for a single violation.

One of the biggest violations of KYC/AML norms by banks was exposed in a sting operation by investigative media portal Cobrapost in 2013. After investigating the allegations made by the portal, the RBI imposed a total fine of Rs 50 crore on 22 banks. In December last year, the central bank imposed a penalty of Rs 50 lakh on ICICI Bank and Rs 25 lakh on Bank of Baroda for KYC/AML violations. RBI also warned three other banks — State Bank of India, Axis Bank and State Bank of Patiala — to put in place appropriate measures and review these from time to time to ensure strict compliance of rules.

Again in August 2013, the RBI fined six banks — Allahabad Bank, Bank of Maharashtra, Corporation Bank, Dena Bank, IDBI Bank and Indian Bank — for violating such norms. Before imposing a fine, RBI serves a showcause notice to the banks. A fine is imposed only if the regulator is not satisfied with the bank’s reply.  

BRINGING DOWN THE HAMMER

• Zero tolerance policy on Know Your Customer and Anti-Money Laundering norms to be adopted after a series of violations
   
• Reserve Bank of India to increase the quantum of penalties for such violations
   
• Proposal to put operational curbs on banks; restrictions on branch expansion likely to be imposed
  

 

Monetary penalty likely to rise from the present level of Rs 5 lakh per violation