Best Practices

Know Your Customer Policy

DHFL’S POLICY ON ‘KNOW YOUR CUSTOMER’ AND ‘ANTI-MONEY LAUNDERING MEASURES’ (KYC and AML POLICY) (As revised on 19.10.2006.)

INTRODUCTION

The "Know Your Customer” (KYC) guidelines issued by the National Housing Bank aims at preventing the Housing Finance Companies (HFCs) from being used intentionally or unintentionally by criminal elements for committing financial frauds, transferring or deposits of funds derived from criminal activity or for financing terrorism. Accordingly, the Company has prepared the policy on ‘Know Your Customer and Anti-Money Laundering Measures’ which will be applicable to all the Branches and Service Centers and must be complied with by all the Branch Managers, frontline staff, compliance staff and the staff dealing with the customers. This policy document is in accordance with various guidelines issued by the National Housing Bank as also by our Company for proper identification of an account holder/ customer and for scrutiny/ monitoring of large value cash transaction or transaction of a suspicious nature.

OBJECTIVES OF KYC AND AML POLICY

To lay down explicit criteria for acceptance of customers.
To establish procedures to verify the bona-fide identification of individuals/ non individuals customers.
To establish processes and procedures to monitor high value cash transactions and /or transactions of suspicious nature.
To develop measures for conducting due diligence in respect of customers and reporting of such transactions.
To manage the risk.

DEFINITION OF CUSTOMER

For the purpose of KYC policy, a “customer” will be defined as :

A person or entity that maintains an account and/or has a business relationship with the Company.
One on whose behalf the account is maintained (i.e. the beneficial owner);
Beneficiaries of transactions conducted by professional intermediaries such as Stock Brokers, Company Secretaries, Chartered Accountants, Solicitors etc. as permitted under the law, and
Any person or entity connected with a financial transaction which can pose significant reputation or other risks to the Company, say a wire transfer or issue of a high value demand draft as a single transaction.

CUSTOMER ACCEPTANCE POLICY (CAP)

The Company will have to ensure that elaborate standard procedures are in place on the following aspects of customer relationships in HFCs.

no account is opened in anonymous or fictitious/benami name(s)
obtaining comprehensive information depending on the perceived risk and in accordance with the guidelines issued by the National Housing Bank regarding new customers at the initial stage
ascertaining the volume of turnover, social and financial status, etc. to enable categorization of customers into low, medium and high risk
collecting information and documents in respect of different categories of customers depending on perceived risk and keeping in mind the requirements of The Prevention of Money Laundering Act (PML Act), 2002 and guidelines issued from time to time. The Company may apply enhanced due diligence measures based on the risk assessment, thereby requiring intensive ‘due diligence’ for higher risk customers, especially those for whom the sources of funds are not clear. Examples of customers requiring higher due diligence may include :
1. non-resident customers,
2. high net worth individuals,
3. trusts, charities, NGOs and organizations receiving donations,
4. companies having close family shareholding or beneficial ownership,
5. firms with 'sleeping partners',
6. politically exposed persons (PEPs) of foreign origin,
7. non-face to face customers, and
8. those with dubious reputation as per public information available, etc.

taking appropriate steps to verify the identity and /or obtain documents required as per the risk categorization. The Company must refuse to open an account where the prospective customer does not co-operate with the Company in obtaining these details or where the Company is not sure about the reliability of the data furnished by the prospective customer.
taking adequate steps to ensure that the identity of the customer does not match with any person with known criminal background or with banned entities such as individual terrorists or terrorist organizations, etc.
preparation of a profile for new and existing customers based on risk categorization. The customer profile must contain information relating to the customer’s identity, social/financial status, nature of business activity, information about his clients’ business and their location, etc. The nature and extent of due diligence will depend on the risk perceived by the company. However, the seeking of such information must not be intrusive and the Company must not use such confidential information cross selling or any other purposes.

ensuring that circumstance in which a customer is permitted to act on behalf of another person / entity will be clearly spelt out in conformity with the established law and practice of housing sector as there could be occasions when an account is operated by a mandate holder or where an account is opened by an intermediary in the fiduciary capacity.
ensuring that fixed/recurring deposits are treated as new accounts at the time of renewal.
If the Company is unable to apply appropriate KYC measures due to non-furnishing of information and /or non-cooperation by the customer, the company may consider closing the account or terminating the business relationship after issuing due notice to the customer explaining the reasons for taking such a decision. Such decisions need to be taken at a reasonably senior level after consulting the Principal Officer.

The Company must undertake adequate steps to ensure that the implementation of this policy must not become too restrictive and must not result in denial of the Company’s services to general public, especially to those, who are financially or socially disadvantaged.

CUSTOMER IDENTIFICATION PROCEDURE (CIP)

Customer identification means identifying the customer and verifying his/ her/ its identity by using reliable, independent source documents, data or information. The Company must obtain the necessary information to establish the identity of each new customer, whether regular or occasional and the purpose of the intended nature of relationship. The Company must carry out the identification procedure at different stages, i.e. while establishing a relationship; carrying out a financial transaction or when the Company has a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data.

Accounts of Natural Persons

The true identity and bonafides of the existing customers and new potential customers opening accounts with the Company and obtaining basic background information would be of paramount importance

The Company will obtain sufficient identification data to verify
(a) the identity of customer
(b) his / her address / location and
(c) his/ her recent photograph.
The customer identification will be through an introductory reference from an existing customer with a satisfactorily conducted account or a person known to the Company and on the basis of documents provided by the customer or through staff members knowing the potential customer or any other document from the indicative lists given in Annexure for identification and proof of residence.
In addition to the above, the Company must also ask the applicants to give an additional document e.g. a letter from the employer giving the correct address, Bank Statement, credit card statement etc. In case of joint account, applicants who are not closely related to each other would be required to establish their identity and address independently.
In respect of NRI accounts, introduction and authentication/ verification of signatures will be made by a bank/Indian embassy/ High Commissioner/ Consulate/ Notary Public/ Persons known to the Company.
For establishing identity or proof of residence Ration Card will normally not be used as document. However, in the event of non-availability of any other document, Ration Card may also be accepted as proof of residence from Minors/Illiterate persons or house wives etc. who are unable to produce other documents.

Accounts of Legal Persons or Entities

The Company must verify the legal status of the legal person/ entity through proper and relevant documents as indicated in the Annexure.
The Company must verify the identity of any person purporting to act on behalf of the legal person/entity and whether he/ she is so authorized and understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person.
In case of client accounts opened by a professional intermediary the Company will not only identify the client / beneficial owner but also satisfy itself that the intermediary is regulated and supervised and has adequately system in place to comply with KYC norms.
The decision to open accounts of a Politically Exposed Person (PEP) will be taken only in consultation with the level of the respective Zonal Managers. The PEPs will be defined as individuals who are or have been entrusted with prominent public functions in a foreign country e.g. Heads of States or of Governments, Senior politicians, Govt./ Judicial/ Military officers, senior executives of State owned corporations, important political party officials etc.
In the case of non-face-to-face customers, apart from applying the usual customer identification procedures, adequate care must be taken to mitigate the higher risk involved. Certification of all the documents presented must be insisted upon and, if necessary, additional documents may be called for.
For various types of non individual the documents stated against their names in Annexure and any other documents/ introduction that the Company feels necessary to comply with KYC guidelines will be obtained for identification.

KYC FOR THE EXISTING CUSTOMERS

While the revised guidelines will apply to all new customers, the Company should apply the same to the existing customers on the basis of materiality and risk. However, transactions of the existing customers should be continuously monitored. It must be ensured that all the existing customers are subjected to minimum KYC standards which would establish the identity of the natural/legal person and those of the 'beneficial owners'.

CUSTOMER PROFILE

For the purpose of exercising due diligence on individual transactions in accounts, a ‘Customer Profile' of individual customers will be included in the loan application/ Fixed Deposit forms. The customer profile will contain information relating to the customers identity, social/ financial status, nature of business activity, information about the customers clients’ business and their location etc. The information will be of two types namely mandatory and optional as stated below:

(a) Mandatory Information :-

i) Occupation (ii) Source of funds (iii) Monthly Income (iv) Annual turnover (v) Date of Birth (vi) Dealings with other banks (vii) Assets (approximate value).

(b) Optional Information :-

1) Marital Status; 2) Educational Qualification; 3) Educational Qualification of spouse; 4) Details regarding children; 5) Information like whether the customer - i) Owns a car/two wheeler ii) has a credit card iii) has a LIC policy.

CUSTOMER EDUCATION:

The Company must take adequate measures to educate the customer on the objectives of the KYC programme, especially at the time of obtaining sensitive or personal information from the customers Wherever the Company desires to collect any information about the customer for the purpose other than KYC requirement, it will not form part of the account opening form. Such information will be collected separately, purely on a voluntary basis in a form prescribed by the Company after explaining the objective to the customer and taking the customer’s express approval for the specific uses to which such information could be put. The front desk staff must be specially trained to handle such situations while dealing with customers The Company will also take care to see that implementation of the KYC guidelines in respect of customer acceptance, identification etc. do not result in denial of opening of new accounts and housing services to general public.

RISK MANAGEMENT

The Company must ensure that adequate measures are taken to cover proper management oversight, systems and controls, segregation of duties, training and other related matters. Responsibility should be explicitly allocated within the Company for ensuring that the housing finance companies’ policies and procedures are implemented effectively. The Company must also devise procedures for creating Risk Profiles of their existing and new customers and apply various Anti Money Laundering measures keeping in view the risks involved in a transaction, account or business relationship.

The Company will categorize the customers according to the risk perceived to facilitate undertaking due diligence for the purpose of risk categorization

(i) Low Risk

Low Risk individuals are those individuals (other than high net worth) and entities whose identities and sources of wealth can be easily identified and the transactions in whose accounts by and large conform to known profile. Low – risk customers will include

salaried employees whose salary structures are well defined
people belonging to lower economic strata of the society whose accounts show small balances and low turnover

Government departments/ Govt. owned companies regulators and statutory bodies etc.

(ii) Medium Risk

The medium and high risk customers will be categorized on the basis of the customer’s background, nature and location of activity, country of origin, sources of funds and client profile. Medium Risk customers will include

Non- resident customers
high net worth individuals,
trust, charitable organizations, Non Govt. Organisation (NGO) and organization receiving donations
companies having closed family share holding or beneficial ownership.

(iii) High Risk

High risk customer will typically include

firms with sleeping partners
politically exposed persons (PEPs) of foreign origin
non face to face to customers and
persons with dubious reputation as per public information available.
persons whose sources of income are not clear.

The Company will subject accounts of such customers to intensive due diligence.

IDENTIFICATION OF HIGH VALUE/ SUSPICIOUS TRANSACTIONS / TERRORISM FINANCE

Ongoing monitoring is an essential element of effective KYC procedure. Company can effectively control and reduce its risk only if it has an understanding of the normal and reasonable activity of the customer so that it has the means of identifying transactions that fall outside the regular pattern of activity.

MONITORING OF CASH TRANSACTIONS AND TRANSACTIONS OF SUSPICIOUS NATURE

The Company must pay special attention to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose. The Company must also have understanding of the normal and reasonable activity of the customer so that they have the means of identifying transactions that fall outside the regular pattern of activity in order to effectively control and reduce the risk. Transactions that involve large amounts of cash inconsistent with the normal and expected activity of the customer should be noted and must be reported to the Corporate Office.

High-risk accounts have to be subjected to intensified monitoring. The Company should put in place a system of periodical review of risk categorization of accounts and the need for applying enhanced due diligence measures. The Company should ensure that a record of transactions in the accounts is preserved and maintained as required in terms of section 12 of the Prevention of Money Laundering Act (PML) Act, 2002. It may also be ensured that transactions of suspicious nature and/or any other type of transaction notified under section 12 of the PML Act, 2002, is reported to the appropriate law enforcement authority, within the stipulated time frame.

The Company must ensure that proper records of all cash transactions of Rs. 10 lakhs and above. The branches must report such transactions and other transactions of suspicious nature to the Corporate Office of the Company on a fortnightly basis.

The cash transactions will be monitored in the following manner :

The transactions involving cash withdrawals and/ or cash deposits for Rs.10 lacs and above or Rupee equivalent in Foreign Currency in deposit or loan accounts as well as all series of cash transactions integrally connected to each other which have been valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds rupees ten lakh; will be monitored closely by the branches and the record of details of such transactions will be kept in separate register and must be reported to the Principal Officer.

Suspicious Transactions means a transaction whether or not made in cash which, to a person acting in good faith-

gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
appears to be made in circumstances of unusual or unjustified complexity; or
appears to have no economic rationale or bonafide purpose.

An Illustrative List of suspicious transactions in housing/ builder/ project loans is attached to the Circular No. NHB (ND)/DRS/ POL-No-14 /2006 dated July 25, 2006.

All the transactions of suspicious nature, irrespective of any monetary ceiling (whether more than ten lakh or not), whether or not made in cash should be reported to the Principal Officer of the Company. The reporting formats of suspicious transactions are attached to the Circular No. NHB (ND)/DRS/ POL-No-14 /2006 dated July 25, 2006

INTERNAL AUDIT FUNCTIONS

The Internal Auditors of the Company must be well versed with the KYC policies and must ensure adherence to the KYC procedures. The Internal Auditors should verify the application of the KYC procedures at all the branches and comment on the lapses observed in this regard. The compliance of the KYC guidelines and the specific cases of violation must be put before the Audit Committee of the Board at regular intervals.

APPOINTMENT OF PRINCPAL OFFICER

The Company has appointed Shri S. Y. Sankhe, Company Secretary, a senior management officer in M-1 Grade as the ‘Principal Officer’ who will be responsible for reporting all transactions and sharing of information. He will also be responsible to ensure that proper steps are taken to fix accountability for serious lapses and intentional contraventions of the KYC guidelines.

TRAINING TO EMPLOYEES

The Company must envisage having an ongoing employee training programme so that the members of the staff are adequately trained in KYC procedures. Training requirements will have different focuses for frontline staff, compliance staff and staff dealing with new customers. It is crucial that all those concerned fully understand the rationale behind the KYC policies and implement them consistently and effectively.

PRESERVATION OF RECORDS

The Company must also take appropriate steps to evolve a system for proper maintenance and preservation of account information in a manner that allows data to be retrieved easily and quickly whenever required or when requested by the competent authorities. Further, the Company must also preserve and maintain all necessary records pertaining to the identification of the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN, utility bills etc.) obtained while opening the account and during the course of business relationship for at least ten years from the date of cessation of transaction between the Company and the customer, so as to provide, if necessary, evidence for prosecution of persons involved in criminal activity.

The following records must be preserved by the Company

the nature of the transactions;
the amount of the transaction and the currency in which it was denominated;
the date on which the transaction was conducted; and
the parties to the transaction.

INTRODCTION OF NEW TECHNOLOGIES

The Company must pay special attention to any threats that may arise from new or developing technologies in the implementation of the policy including on-line transactions that might favour anonymity, and take measures, if needed, to prevent their use in money laundering schemes.

FURNISHING OF INFORMATION

All the Branch Managers are required to report the cash transactions and transactions of suspicious nature as defined earlier on a regular basis to the Principal Officer in the format prescribed by the National Housing Bank. The Branch Managers must furnish the details of the transactions in the prescribed forms on monthly basis within 10 days of the close of month. The list of forms as mentioned below for the Cash Transactions and the suspicious transactions are attached to the Circular No. NHB (ND)/DRS/ POL-No-14 /2006 dated July 25, 2006

MCTR (Manual Cash Transaction Report) for HFCs- Annex-1
MCTR(IDS)-Annexure-A (Manual Cash Transaction Report- Individual detail sheet for HFCs)- Annex-2
MCTR(LP/Entity-Details)-Annexure-B (Manual Cash Transaction Report- Legal Person/Entity detail sheet for HFCs)- Annex-3
MSTR (Manual Suspicious Transactions Report) for HFCs- Annex-5
MSTR(IDS)-Annex-A (Manual Suspicious Transactions Report- Individual detail sheet)-Annex-6
MSTR(LP/Entity-Details)-Annexure-B (Manual Suspicious Transaction Report-Legal persons/Entity)-Annex-7
MSTR(ADS)-Annexure-C (Manual Suspicious Transaction Report-Account Details Sheet)-Annex-8

CIRCULARS ISSUED BY NHB

In addition to this policy, the Branch Managers are also required to take note of the following circulars issued by NHB and comply with the guidelines contained therein:

NHB(ND)/DRS/POL-No-02/2004-05 dated August 25, 2004
NHB(ND)/DRS/POL-No-05/2004-05 dated September 23, 2004
NHB(ND)/DRS/POL-No-08/2004-05 dated March 31, 2005
NHB(ND)/DRS/POL-No-13/2006 dated April 10, 2006
NHB(ND)/DRS/POL-No-14/2006 dated July 25, 2006

COMPLIANCE

This policy is made in accordance with the guidelines issued by the National Housing Bank. Considering the objectives and purpose of the KYC policy and AML measures, all the Branch Managers, frontline staff, compliance staff and the staff dealing with the customers are required to implement this policy effectively and with immediate effect.

If the Branch Managers have any questions relating to the interpretation of this policy, they can contact the Principal Officer, Shri S. Y. Sankhe at the Corporate Office for further clarification in the matter.

DECLARATION

To,
The Principal Officer,
Dewan Housing Finance Corporation Ltd,
Dheeraj Arma,
6th Floor, Station Road,
Bandra (East),
Mumbai-400 050

Dear Sir,

I, Mr./Ms__________________________________________________(designation) have received and read DHFL’S policy on ‘KNOW YOUR CUSTOMER’ and ‘ANTI-MONEY LAUNDERING MEASURES’ and have noted the contents thereof and agree to comply with the same.

Signature

Name:
Designation:
Place:
Date:

Kindly sign and return this declaration on or before 15th October, 2006.

Annexure
Customer Identification Procedure

Features to be verified and documents that may be obtained from customers

1) Accounts of individuals –

Legal name and any other name used
Correct permanent address
Passport
PAN/GIR number or Form 60 or 61 (wherever applicable)
Voter’s Identity Card
Driving Licence
Identity card (subject to the company’s satisfaction)
Letter from recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of Company.
Latest Telephone bill
Latest Bank account statement
Letter from any recognized public authority
Latest Electricity bill
Ration Card
Letter from employer (subject to satisfaction of the company) (any one document which provides customer information to the satisfaction of the Company)

2) Accounts of Partnership Firms–

Legal name –
Address –
Names of all partners and their addresses –
Telephone numbers of the firm and partners
Registration certificate, if registered
Certificate copy of Partnership Deed or Partnership Letter
Power of Attorney grated to a partner or an employee of the firm to transact business on its behalf
Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses
Telephone bill in the name of firm / partners.

3) Account of Limited Companies

Name of the company
Principal place of business
Mailing address of the company
Telephone/ FAX Number
Certificate of incorporation
Memorandum & Article of Association
Certificate of commencement of business (in case of Public Limited Company)
Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account.
List of Directors
Power of Attorney granted to is managers, officers or employees to transact business on its behalf
Copy of PAN allotment letter
Copy of the telephone bill.
Copy of Audited Accounts, if the Company is an existing company.

4) Accounts of Clubs, Associations, Societies etc.

Name of the Club, Association, Society
Mailing address
Telephone/ FAX Number
Others
Certificate copy of constitution or Bye-laws of the Club/ Associations/ Society
Registration certificate, if registered
Resolution of Executive committee or Governing Body to open and operate the account
List of members of Executive committee/ Governing Body
Telephone bill.
Electricity Bill

5) Accounts of Local Body

Name of the Local Body
Mailing address
Telephone/ FAX Number
Certified copy of resolution to open and operate Bank account and attested specimen Signature of persons authorized to operate the account.
Telephone bill
Electricity Bill

6) Accounts of Government Department

Name of the Department
Mailing address
Telephone/ FAX Number
Certified copy of notification / order authorizing opening of account and attested Specimen signatures of persons authorised to operate the account
Telephone bill

7) Accounts of Trusts & foundations

Names of trustees, settlers, beneficiaries and signatories
Names and addresses of the founder, the manager/ directors and the beneficiaries
Telephone / fax number
Certificate of registration, if registered
Certified copy of Trust Deed
Power of Attorney granted to transact business on its behalf
any officially valid document to identify the trustees, settlors, beneficiaries and those holding Power of Attorney, founders / managers/ directors and their addresses
Resolution of the managing body of the foundation/ association
Telephone bill

8) Accounts of Liquidators/ Receivers/ Executors/ Administrators

Names of Liquidators/ Receivers/ Executors/
Administrators
Mailing address
Telephone / fax number
Certified copy of Resolution passed by the company/ order of the court for appointment of Liquidator/ Receiver/ Administrator or copy of the will appointing executor accompanies with a copy of Probate of will.
Telephone bill

9) Accounts of Agents

Names of agent
Mailing Address
Telephone / fax number
Power of Attorney by the principal in favour of the Agent on requisite stamp paper duly notarized and
Specimen Signature of the agent duly attested by principal.
Telephone bill

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