KYC: An Over Burdening Process
Hira Bahadur Thapa
For the last few years, the commercial banks, following the directives from NepalRastra Bank, the nation’s central bank, have been asking their clients to fill-up ‘Know Your Customer’(KYC) forms while opening new accounts. The banks may have their own requirements in this regard. This write up is intended to delve into the experience of the account holders in this connection and suggest remedial measuresto streamline the procedures for the common benefit.There have been continuous efforts from the smugglers, and more dangerously the terrorists in the recent years, to use the banking channel for hoarding and transferring money to their suspicious recipients.With increasing globalisation, the movement of goods and services has become smoother and it has paradoxically given rise to various illegal activities in the financial sector.
Due toglobalisation no country can remain unaffected by the economic activities of another whether in the region or beyond. Ittransdents all frontiers and so with this processany event that influences an economy in any country instantly leaves its impression on other countries.If confrontation flares up in the Middle East, the region which boasts of supplying the largest quantity of crude oil to the world market, it may adversely impact the economies of the country around the globe because of interconnectedness of economy.We can clarify this scenario by taking the case of our domestic gold market. Whenever there is movement in the price structure of world oil market, or some political upheaval with possibility of endangering global peace and security, it affects our market causing rise or fall in the price of the precious metals.
The economists believe that globalisation has benefited humanity by facilitating the economic transaction worldwide. This facilitation is indirectly responsible for creating avenues for new economic crime. With growing migration, the transfer of funds from one corner of the world to another one is becoming more frequent and is involving billions of rupees on a daily basis.As revealed by the country’s central bank a large amount of remittances earned and sent by our millions of foreign based workers is not entering through legal channels. Use of opaque means of transfer of money like hundi also helps the smugglers to use the fund for corrupt businesses evading the taxes due to the government. Such illegal system of money transfer impedes a country’s economic growth by preventing the deposit of hard currencies in the central bank and encouraging non-productive consumption.
The government has to bring about appropriate policies to channel the inflow of funds into the country for productive enterprises. Otherwise, the resources available may not be used fruitfully to benefit the nation in terms of economic growth. Here comes the role of the banks to determine the most productive sector of the economy to invest. Banks are the lenders and borrowers too. These financial institutions need to be prudent in lending because the funds they accumulate from deposits is the public money. Moreover, the banks are required to restore financial discipline by dissuading the deposit of money the legal source of which is questionable.
Therefore, the international community has gathered consensus among the nations to abide by certain regulations so that illegal accumulation and deposit of funds can be curbed. This systemhas two basic reasons for its justification. One is the desire to prevent corrupt people from depositing their earnings in the banks. The other is to block the misuse of funds for terrorist activities.With these twin objectives under consideration,the banks have been asking their customers to reveal the sources of their funds if that cross the limits set by them.In order to open any account we have to submit many documents, including our citizenship cards. The banks are insisting on the presentation of electricity bills as well supposedly to locate the address of the customers. Even for the nominees of the accounts, they demand citizenship cards.
Besides,the most needed information from the banks is the thorough description related to the customers’ family composition including the names of grand parents, sons, daughters, and daughter-in-laws.The account holders are required to present their estimated annual income and the amount of likely transaction with the bank. This income revelation is applicable even to the nominees.The aforementioned details are provided by filling-up 4 page-long form, which is commonly known as Know Your Customer (KYC). No account can be opened without filling-up the KYC form along with the submission of various documents.So far the process of opening a new account is concerned the presentation of KYC looks fine considering the fact the banks want to be informed well about the clients and in case they need to be in touch with them they can do it promptly.But the real pain starts for the customers when they visit the banks either for deposit or withdrawal of funds. As soon as the bank personnel is approached the first instruction is to get a form from them to request them to activate the accounts. Secondly, they will ask us to fill-up the cumbersome KYC form again.
Activation of the dormant accounts through a form is not that troublesome but requiring the same customer to repeat the whole story by answering same set of questions in KYC form in the name of update is totally nonsensical based on the time and resource involved. Filling-up KYC form is indeed irritating not only because it contains silly questions but also because one has to submit the same set of documents like citizenship card and photos every time one has to update.One can understand that some pieces of individual information may need to be updated. Why can’t the banks ask for necessary update only? Possibly, the bank staff do not want to check the previous information. When the computer displays KYC update, they just overburden the valued customers by asking them to repeat the whole story again. Is it not the wastage of time and energy? Hopefully, the concerned banks will take care of this and accordingly take the remedial measures.