Forty-two accounts in twenty-one days: KYC exceptions on the day of an incentive cut-off
During a branch CASA campaign, a relationship manager has opened 42 accounts with initial funding of Rs 10 lakh or more in 21 days. Eleven of them are at the same residential address on different floors; six were funded by a single cheque from an account linked to a non-banking finance company; one account holder is a former legislator's spouse, which the system flags as a politically exposed person; and one account has received a series of small NEFT credits followed immediately by cash withdrawals at a distant branch. Sixteen of the accounts have pending KYC exceptions in the system. The RM is 60% short of the target and will lose the entire quarterly incentive if the exceptions are not cleared by tomorrow, which is also the cut-off for the campaign credit. The branch manager asks you, as the officer handling compliance, to “clear the pending KYC exceptions today”.
1. What is your response to the instruction to clear the KYC exceptions today?
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Reasoning. The campaign cut-off is a performance date, not a due-diligence standard. Clearing a KYC exception without resolving the underlying risk is a record falsification, and it is the branch that carries the consequence - not the RM's incentive.
Action plan.
- Decline to clear any exception on the basis of the cut-off, and say so in writing with reasons, addressed to the branch manager.
- Separate the sixteen accounts into risk buckets: the PEP-linked account and the rapid-credit-then-cash-withdrawal account are high risk and need enhanced due diligence; the eleven same-address accounts need beneficial-ownership verification; the six common-source accounts need verification of the funding relationship.
- Apply a short, defined hold on operations for the high-risk accounts pending due diligence rather than freezing everything, so that unrelated customers are not inconvenienced.
- Fix a realistic closure date per account and record the interim decision in the branch register.
- If the branch manager insists, escalate the written instruction and your refusal upward rather than absorbing it silently - the written escalation is the officer's protection.
2. How do you handle the relationship manager's target shortfall and the risk of mis-selling or window dressing?
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Reasoning. The RM is not the problem; the scheme is. A campaign that pays out on accounts opened, with KYC treated as a tick-box, will reliably produce exactly this pattern. Punishing the RM alone leaves the incentive intact for the next one.
Action plan.
- Meet the RM with the specific data - same address, single source of funds, immediate withdrawal - and ask for the explanation before any inference is drawn.
- Make clear that pending KYC will not be cleared retroactively and that the incentive will be recalculated on eligible, fully compliant accounts.
- Consider a written note to the campaign owner recommending that subsequent incentives be released only on accounts that are KYC-complete and, say, 90 days old - this removes the incentive to front-load.
- Check whether the six-source pattern was suggested by an intermediary or a deposit aggregator; if so, that is the more serious issue and it needs to go up the line.
- Do not treat a target shortfall as either an excuse or an accusation; keep the file on evidence and dates.
3. What must be reported, to whom, and what must you avoid doing?
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Reasoning. The decisive test is not simply whether these are suspect transactions on a balance of probabilities, but whether there is a reasonable ground for suspicion - the threshold is low, and the consequence of a late filing falls on the bank.
Action plan.
- Prepare a factual note on the flagged accounts and place it before the branch's designated Principal Officer for the financial-intelligence reporting function; the branch does not decide alone whether to file.
- If the Principal Officer concurs, the suspicious transaction report is filed through the designated channel within the prescribed timeline, with the supporting transaction trail attached.
- Do not confront the customer, hint at the report, or ask the customer to explain the withdrawal pattern - disclosure of a report to the customer is prohibited and can constitute tipping-off.
- Do not discuss the case in open branch meetings or on e-mail groups; use restricted circulation.
- Keep the PEP relationship under enhanced ongoing due diligence, including source-of-funds documentation and senior-management approval for continuance, and document that decision. Silence to the customer, full disclosure upward - that is the operating rule.