Page 153 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes
before resulting in the bank having to fold up operations. While fines and settlements
totalled US$59 million, legal and consulting fees topped US$35 million, and resulted In a
20 per cent drop in the banks share price. Clarifying that KYC is not limited to individuals,
but encompasses companies, trusts and charities, both offshore and onshore, Mr. Jhaveri
further elaborated that KYC is not confined to customers and extends to correspondents,
credit cards, insurance, mortgages and service providers. He also pointed out the imperative
to also know the customer's customer, by monitoring transactions and deposits extending
to guarantors and referees. Endorsing the regulator's warning, Mr. Jhaveri pointed out
that cross border risks of noncompliance have resulted in OFAC fines and blacklisting.
The next leg of the briefing is likely to be held in early June in Bangalore, to enable banks
in South India to attend it.
Source: www.iba.org.in/events/write-up1.doc

7.8 Summary

The objectives of the policy are to prevent criminal elements from using the bank for
money laundering activities by enabling the bank to know/understand the customers
and their financial dealings.

FEMA has stipulated a transition period of two years for replacing FERA by FEMA. After
the expiry of two years from the date of enforcement of FEMA, i.e., w.e.f. 01.06.2002, any
Court or Adjudicating Authority would not try any offence under FEMA.

Retail Banking has wider connotation; it also include designing, developing and marketing
of customized products/services.
The Banks should spread awareness on KYC, Anti-Money Laundering measures and the
rationale behind them amongst the customers.
FEMA holds that a person for the purpose of the act means Any agency, officer or branch
owned or controlled by person.

FERA contained 81 sections (some were deleted by 1993 amendment), out of which 32
sections were relating to the operational part and the rest were rating to penalties,
Enforcement Directorate etc.

7.9 Keywords

Customer lending: Alternative term for consumer loan.
FEMA Act: Foreign exchange management is associated with currency transactions designed to
meet and receive overseas payments.
FERA Act: An act to regulate certain payments dealing in foreign exchange, securities, the
import & export of currency and acquisition of immovable property by foreigners.
KYC Norms: The activities of customer due diligence that financial institutions and other regulated
companies must perform to identify their clients and ascertain relevant information pertinent
to doing financial business with them.
Retail banking: Savings accounts, consumer loans, credit cards, etc., and other such services
provided to individuals also called consumer banking. See also corporate banking and wholesale
banking.
Record keeping: The maintenance of a history of one's activities, as financial dealings, by
entering data in ledgers or journals, putting documents in files, etc.
Retail lending: It is the practice of loaning money to individuals rather than institutions.

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