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Sanderson Abel

One of the contentious issues in the banking sector is the need for potential bank clients to produce documentary evidence of where they stay or where they do their business. From a banks perspective this information is important as it allows the bank to understand whether the customer has a fixed place of residence or they are just mobile of no fixed abode.In a study undertaken by the Bankers Association of Zimbabwe and Zimbabwe Economic Policy Analysis and Research Unit in 2014, it was established that the majority of the informal sector players (around 73 percent) were operating from designated places while others operated from undesignated places.

For banks, it is very important for them to ascertain the where individuals work from and also have the knowledge where their clients stay.

This information is important for the banks as there are supposed to do due diligent on their clients before they can open accounts for them.

The study revealed that the majority of the clients do not have adequate documentation to prove that there are officially operating at the designated premises or produce their proof of residence.

What is the objective of KYC?

It is important to understand that Banks at law are supposed to follow the know Your Customer (KYC) norms.

The main objectives of these norms is to prevent criminal elements from using the bank channels for money laundering activities and or financing of terrorism related activities.

Apart from checking money laundering, KYC is also important tool for checking frauds that sometimes unscrupulous and criminal elements try to perpetrate both on banks and unsuspecting members of public.

In order to prevent such activities, it has become necessary to know about the true identity of customer, nature of customers business, source of funds etc.

It assists the banks to know and understand the customers and their financial dealings better to monitor their transactions for identification and prevention of suspicious transactions.

Why KYC?

KYC is meant to establish the identity of the client.

This means identifying the customer and verifying his/ her identity by using reliable, independent source documents, data or information.

For individuals, bank will obtain identification data to verify the identity of the customer, his address/ location and also his recent photograph.

This will be done for the joint holders and mandate holders as well.

For non-individuals, bank will obtain identification data to: verify the legal status of the legal person/ entity; verify identity of the authorised signatories and verify identity of the beneficial owners/ controllers of the account.

To ensure that sufficient information is obtained on the nature of employment/ business that the customer does / expects to undertake and the purpose of the account.

Banks with inadequate KYC risk management programme may be subject to significant risks, especially legal and reputational ones.

Sound KYC policies and procedures not only contribute to a bank’s overall safety and soundness, they also protect the integrity of the banking system by reducing the likelihood of banks becoming vehicles for money laundering, terrorist financing and other unlawful activities.

The legal and reputation risks are global in nature and as such, it is essential that each bank develops a global risk management programme supported by policies that incorporate KYC standards.

It is important that the adoption of customer acceptance policy and its implementation should not become too restrictive and must not result in denial of banking services to general public, especially to those, who are financially or socially disadvantaged.

What can be used for tracing clients?

Letter from a recognised public authority or public servant verifying the identity and residence of the customer to the satisfaction of the bank

Telephone bill

Bank account statement

Letter from any recognised public authority

Electricity bill

Letter from employer (subject to satisfaction of the branch

Banks cannot only confine to documents mentioned in indicative list only. If the customer provides any other document, which establishes proof of identity and proof of current address to the satisfaction of the bank, the same may be accepted.

It also important that banks should inform their customers that in the event of change in address due to relocation / any other reason, they should intimate the new address to the bank within reasonable time period of such a change.

Bank clients should note that the information supplied to the bank by its clients at the time of opening the account or any other time, are kept confidential and are not disclosed to any person, except when required under the provisions of the applicable laws and regulations of the country.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008