Page 30 - Banking Finance January 2020

ARTICLE

Banks should evolve a process of checklisting which enables Know Your Principles for Prevention of
them to examine any deficiencies while releasing the funds
to the borrowers or monitoring the end use of funds. Lastly, Frauds:
there is a need for building up a cadre of officials with proper In 2015, in his speech delivered by Shri R. Gandhi, Deputy
educational background and training to take care of larger Governor, RBI (9), three Know Your Principles are suggested
projects financed by the banks. for banks to prevent a fraud. These include: Know Your
Customer (KYC), Know Your Employee (KYE) and Know Your
(3) Frauds related toDeposits: There are several ways Partner (KYP). Regarding the first KYC, the emphasis is on
of perpetrating frauds in deposits area. These include: the different types of document to be obtained from an
opening of new fictitious deposit accounts by persons not account holder which will establish that KYC norms have
properly identified by the bank followed by depositing of been followed. In a scenario where many frauds are
fake/stolen/forged instruments in such accounts and then committed by submitting forged and fabricated documents,
withdrawing proceeds, manipulation in inward/outward KYC becomes very important.
clearing, by passing unauthorized entries in the books
accounts, giving free access to unidentified so called A bank, apart from obtaining the relevant documents,
middlemen/ agents of the original depositor and should make an effort to KYC in the real sense regarding his
withdrawing the amount, debiting impersonal accounts such background, his stated activities/profession, what his
as Imprest Clearing Account/ Suspense account, laxity in signature/ style of operation etc. A robust KYC system
the safe custody of critical stationary etc. envisages an understanding of his pattern of transactions
and will let the bank draw up a customer profile.
In these regards, banks should ensure that deposit accounts
maintained with them are fully KYC compliant. Newly opened Once this is established, any exception to the norms can
accounts with unusual banking operation should be under raise a red flag and tracked or confirmed with the customer.
check. Further, timely rectification of entries in Suspense At the bank level, it is possible to segment its customers
Accounts, and Reconciliation of entries in Clearing Adjusted based on their risk profile and transaction patterns and
Account should be ensured, adequate safeguards should be develop appropriate response systems for exceptional
in place in respects of TTs, DDs and Pay Orders. Operations patterns noticed and fortify systemic level controls. About
in dormant accounts should be under watch. The banks the second KYE, several frauds are committed by insiders..
should also have a system of generating alerts to monitor Bankers are generally people of integrity.
transactions in accounts which are inoperative for long or
where transactions are not in conformity with general trend The selection process is highly sensitized in this respect.
and customer risk profile. Banks have to take extra care to have continuous vigil on
their staff. Background checking for antecedents, checks
and balances, periodic rotations, vigilance assessments and
internal audits techniques will have to be employed to know
the employees better and as preventive measures. The last
one is KYP. Modern day banking necessitates that a bank
join hands with partners, agents, vendors etc.

Outsourcing peripheral and several operational activities
involves deploying and trusting somebody else's employees.
Varied activities as diverse as cash logistics to IT and data
management are being entrusted to third parties. Banking
Correspondents and Banking Facilitators are emerging as
another set of persons closely associated with a bank. If
frauds are to be prevented effectively, banks have to know
their partners.

30 | 2020 | JANUARY | BANKING FINANCE