Management of Customer Accounts

8/10/2019 Management of Customer Accounts

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WELCOME TO

MANAGEMENT OF CUSTOMER

ACCOUNTS

Skali-BBL-L&D -TRG. 1


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O B J E C T I V E

At the end you will have

increased your knowledge &

skill in areas of management

of Customer accounts.



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INTRODUCTION

What is a bank?

What is banking?

Bank deposits/ Lending money

Bangladesh Bank

Financial institutions



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Banking Company, Banker, Banking_

Banking Companies Act 1901, Sec .5 (O);

Banking Company : Any company which transacts business

of banking in Bangladesh and includes a new bank and a

specialized bank.

Banker: the person(s) carrying on the business of banking.

Banking: (sec 5(p) : means the accepting , for the purpose of

lending or investment of deposits of money from the public,

repayable on demand or otherwise, and with draw able by

cheque, draft, order or otherwise.

BANK is a business that deals in money and c redi t



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What is banking/ What bank does?

Banking basically involves

acceptance of deposits repayable on

demand or at arranged future timeat customers request.

Lending of money to customers for credit worthy

purpose at interest. In the process generate adequate income.



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Banks principal functions

Receipt of various types of deposits

Collect instruments representing money on behalf

of customer.

Granting credit to customer.

Discounting of bills, promissory notes

Granting of loans, overdrafts etc

Lending money to call money market.

Providing remittance of funds/ issue of- DD,TT,TC,L/C etc.

Accepting & endorsing bill on behalf of customers.



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Subsidiary functions:

Buying and selling of securities. Executing standing instructions of customers.

Collecting interest and dividend on customers.

Safe custody of valuables on securities.

Letting out of safe deposit lockers.

Acting as executors and trustees.

Issuing different types of letter of credit.

Issuing Travelers cheques.

Issuing indemnities and Guarantees.

Etc.

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How to become a Customer ?

Requirements:1- an offer by a person to open some sort of an

a/c either current, saving or fixed deposit.

2- bankers willingness to accept such an offer

ultimately resulting in the opening of an a/c.

Customer = a person who keep an a/c with a bank.

Relationship between bank and customer is highly

confidential and contractual.



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What is the meaning of Customer

A Customer is a person who maintains an account with the bank ,without taking into consideration the duration and frequency ofoperation of the account.

To constitute a customer of the bank -

* one should have an account with the bank

* one should deal with the bank in its nature of

regular banking business.

* one should deal with the bank without consideration of the

duration and frequency of operation of his account.



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Obligation of customer to banker:

a) to draw cheques in such a way as not to

facilitate fraudulent alteration.

b) To sign cheques in such a manner that

reasonable comparison with specimen

signature feasible.

c) Not to sign cheques in blank withoutproper control.

d) To pay a reasonable charge for services.



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Bankers obligations to customer:

1. Accepts deposits and other financial instruments payable

on demand.

2. To honor orders for withdrawal of deposited sums onlywith customers instructions.

3. To preserve strict confidentiality concerning customers

affairs.

4. To give reasonable notice to customer before closing hisaccount.



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Banker Customer Relationship

Contractual

Based on law,

customs &

practices



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Banker Customer Relationship

The Contract

When a customer pays money into his account

the bank = a debtor

customer = creditor ,

the money becomes the property of the bank, the bank has borrowed

the money from the customer.

Also, principal (customer) = agent (bank) as in cases ofcollections of deposited items, (buying & selling of securities,

periodical payments etc.)

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Banker- Customer Relationship

The relationship between the Banker & Customer is very

important. Both serve the society and the economy to expand.

A banker is a dealer in capital or more properly a dealer in money.

Banker is an intermediate party between the borrowers ad the

lenderborrows from one party and lends to another.

Banking defined as accepting for the purpose of lending asinvestment of deposits of money from the public, repayable on

demand or otherwise and withdrawn by chqs. draft, pay-order or

otherwise.



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General Relationships :-

Debtor and Creditor :- The true relationship between banker & customer is primarily

of a debtor and creditor.

When a customer deposit money with a bank, the bank is

then the debtor and the customer is the creditor.

The customers expects from the bank that

His money will be kept safe by the bank.

Will be returned on demand.

Money will remain safe & will give something by way of

return (interest).

The position is reversed if the customer is advanced loan

then the banker becomes creditors and the customer is

debtor.



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Rights & duties of the customer

towards the banker

The main rights and duties of a customer towards the bankerin brief as under.

A customer who has depositedmoney can draw chq on hisaccount up to the extent of hiscredit balance or according tooverdrawing limit sanctioned

by the bank.

A customer has the right toreceive statement of accountsfrom the bank.



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Banker- Customer Relationship

1. Principal agent

The customer (principal) deposit chqs., drafts, dividend etc for

collection with the bank.

He also gives written instruction to the bank to purchase security,pay insurance premium and installment of loans on his behalf.

Special relationship between the customer and the banker is that

of principal and agent.

When the bank performs such agency services he becomes anagents of his customers.



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2. Bailer and Bailment Relationship

A bailment is the delivery of goods in trust. A bank may acceptthe valuable of his customer such as jewelry , document,security for safe customer.

In such a case the custody is the Bailer and the bank is

Baillie.

The bank(Baillie) charges a very small amount as servicecharges for safe custody of the valuables from his customers(bailer).

This relationship between the bank and the customer asBaillie and bailer started from the days of earlier gold smith.



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3. Pawn and Pawnees

When a customer pledge goods and document

are security for an advance he then become

pawn (pledger) and the banker becomes the

pawnee (pledge).

The pledge goods are to be returned intact to

the pawn after the debt is repaid by him.



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4. Bank as a Trustee

Bank act as a trustee for his customer in

those case where he accept securities and

other variables for safe custody.

In such cases the customer continues to be

the owner of the valuables deposited with

the bank.



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5. Executor, attorney, guarantor

The Bank also act as executor, attorney

and guarantor for his customer.



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Deposits and Lending

Funds for lending.

Profitability and liquidity.

Lines of defense. Principle of defense.

Safety, Liquidity.

Purpose, profitability.

Security.

National interest, suitability , etc..



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Importance of advances in Banking

business:

Of all functions of to-days banking, lending is by far the mostimportant. Major portion of revenue derived from advancesincluding bills purchased & discounted and interest oninvestments. Advances comprise large portion of banks total

assets, and form the backbone of banks structure. So,strength of a bank is thus primarily judged by the soundnessof its advances. A wise & prudent policy in regard to advancesis considered an important factor inspiring confidence in thedepositors and prospective customers of a bank. All types of

business activity including trade, industry & agriculture haveto depend on bank finance in one form or other. Banks bychanneling accumulated savings of the nation into productiveuses help both the depositors and the borrowers. ---



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Lines of defense.

1. Cash.

2. Money at call.

3. Banks investments.

4. 4th

line of defense -- bills (bills purchased & discounted from1st class parties arising out of genuine transactions

5. Advances. Lastly, in the order of diminishing liquidity, andrising profitability, come regular advances (most are repayable

on demand) comprising loans, cash credits and overdrafts to

different types of customers, trade, Govt., semi govt.,corporations. Strength of all advances as well as their

effectiveness in the promotion of economic progress of the

community depends upon sound principle of good lending.



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Customer Account Types

Individual/ Personal account.

Joint account- individuals.

Sole proprietorship. Partnership.

Joint stock company.

NGO, Trust a/cs. Clubs, Associations etc..



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Business Organizations:

can be grouped in three major

categories:-

1. Sole proprietorship.

2. Partnership.

3. Joint-Stock company.



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Types of deposit accounts:(feature & operations)

Current account.

Saving account Fixed deposits / short term

deposits.

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Opening of bank Account:

Legal Capacity

Identity

Authority

Introduction & reference

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Opening a fraudulent accountred flags and mitigation

Fraudulent application for account opening ,

credit facilities,

Forged / tampered identity documents

Fictitious customers

Forged account statement, tax statements Alter/ counterfeit cheques

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Purpose of opening the fraudulent a/c

To facilitate fraudulent transfer of funds for

subsequent withdrawal

For money laundering For terrorist financing

For conversion of stolen cheque / drafts.



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Indications that a fraudulent a/c is being opened or

application is being submitted

Appearance of new customer does not tally withID ( e.g age, ethnic origin).

Any staining or evidence of tampering with ID Denial of other bank account by a mature

customer.

Statement of earnings does not tally withcustomers age/ occupation.

Illogical choice of branch ( long distance fromhome / office).

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Fraudsters preparations

Opening account based on stolen customerinformation

Using forged income statements

Tampering with official identity documents

Providing an alternative address to driver bankdocuments from reaching the customer.

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Four Principal matters for consideration

Authority to open a/c : whether he has authorized the

opening of an account in his

name.

Customers identity : Whether he is the person he

claims to be.

Customers integrity : whether he is a proper person

to conduct a banking a/c.

Customers employers : whether he is employed and

if so, the name of hisemployers.

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To repay customers deposit on presentation of

customers cheque: Sufficient fund :- If O/D agreed by paying cheque.

Properly drawn :- legal requirement of cheque.

Funds applicable for payment :- trust funds for other

purposes(breach of trust)

Presented withinreasonable time :- Cheques out of date.

Withdrawal agst. Collection :- must be after collection.

No legal bar :- garnishee order, I/Tax attachment

order, Stop payment inst, CB freezing

order, defective title, etc.

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Duty to maintain secrecy re:

customer a/c and affairs.

Where disclosure may be justified:-

1. Under compulsion by law

2. In the public interest.

3. In bankers interest.4. With customers consent.

5. Bankers opinion.

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Partnership:

Two or more joint owners.

Each is personally responsible for all

transactions of the business.

Partners subject to unlimited liabilities i.e

each is fully liable for all debts of the firm.

Limited partnership.

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Joint Stock Company:

Having an identity of its own Owners are not personally responsible

Company is a legal person

Separate entity from owners

Owners are not personally liable for debts of theco. they have limited liability only , this is thestriking difference between a co. and apartnership.

Co. can enter into contracts, sue and be sued,transact business, own property, make loans,maintain bank accounts have obligations differentfrom those of owners.

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Opening & operations of A/Cs

Individual customers:-

Authority to open a/c

Customers identity

Customers integrity

Customers employers

Mandate, power of attorney

Death of an account holder.

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For opening a proprietorship a/c: docs. reqd.

Account opening form /agreement. Certificate of registration / Trade license.

Identification & references.(passport,photography.etc)

Proprietors declaration accepting liabilitiesfor the firm in which name he is trading in hispersonal capacity.

Additional information: customer profile,nature of business, Business and transactionprofile.

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Joint Accounts- individuals

Right of Survivorship

Without right of survivorship.

Authority to 3

rd

party Death of any party to the a/c

Nominee to the a/c

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Docs. Required for partnership/cs:

Account opening form

Authority/ mandate for partnership

Certificate of registration/ Trade license Partnership agreement/deed

Death of partner

Bankruptcy

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Account of Companies

Types of companies: Public / Private

Opening a companys account

Certificate of incorporation Certificate of commencement of business

or Trading Certificate.

Memorandum & Article of Association Resolution/ Mandate for Co. a/c.

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Joint Stock Co.- Docs. Reqd.:

AOF duly completed & supported by:-

1. Certificate of Incorporation

2. Certificate of commencement of business

3. Memo & Article of Assocn.(certified & up to date).4. Copy of Boards resolution(s):

a. authorizing the bank the type a/c to be opened.

b. stating the mode of operation/ authorities of

signatories.

c. names/designation of signatories to the a/c

d. photographs of each signatories.

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Trustee

Definition: Individual, company or association to whomproperty is given in trust to deal with it according to directions

given by the creator of the trust.

Beneficiary Donor.

AOF (incldg. KYC form) properly completed with details as usual , ID,

photographs, etc for each trustees as usual, and also the signatures of all

trustees , to be obtained. Registered Trust Deed (to be carefully checked toensure no extra onus on the bank, and approval of higher authority

obtained).



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Non-trading Associations:

Unincorporated asocn. of persons:-

Sports Clubs, Social Clubs, Charity Societies etcformed for various purposes and not for profit.

Not incorporated and have no legal entity.

Bank to depend largely on the individualsintegrity.

No legal proceeding can be initiated against.

Identity of the individuals representing the asocnmust be established and reference obtained.



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Non-Trading Association(contd,,)

Resolution of the Mg. Com. Appointing theBank as their banker.

Copy of by- laws/ constitution(strictly followed

in the operation of the a/c) Definite instruction about the operation of the

a/c.

Banks standard mandate form should besigned by the chairman passing the resolutionand countersigned by the secretary.



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Introducer in Banking

Purpose and Responsibilities of an Introducer

Opening of an account is the first entry point for any person to become acustomer of the bank. A large number of frauds can penetrate in banksmainly through opening of accounts using fake info

While opening an account, related documents could be forged but when agenuine introducer will introduce s/he will act like a guarantor

Introducer should know about introduced persons business and as far aspossible the nature of his/her earnings and their moral standing

The introducers have a moral responsibility to be honest with the Bankregarding the introduced person.

Introduction of an account should ensure the proper identification of theperson, so that s/he can be traced if the account is misused



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Definition of KYC (Know Your Customer)

To have a sound knowledge about a

customers business and pattern of

financial transactions and

commitments as well as his social and

family background


This is the first step in protecting

our business from money laundering

It ensures that we know the clients

with whom we are dealing


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KYC:: Identifying your Customer

Sufficient information about customer

Document for Customer identification

Detail, Correct and Complete Address of Customer

Address verification by supporting papers The source of wealth /funds of customer

Reason for account opening



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Risk Grading :: KYC Profile Form


Risk Rating Risk Assessment

>= 14 High


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Risk Grading :: KYC Profile Form


Associates:

Complex business association/sensitive business nature

accounts, like association, Trust, PEPs must not be opened

without the joint approval/certification of Business Head or

Head of Risk Management Division.


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Visit Report Need to be attached with AOF


As per resolutions advised in the 57thERMC Meeting reg: "KYC Update and TP

Review

It has been decided that in case of address vis i tat ion don e by any bank

off ic ial , the Vis i tat ion Report con f irmin g addresses of guests along with

-Visitors name,

-PIN,

-Signature

-Customers address

-Visit date and-Time Need to be attached with the AOFs.

All of you are requested to comply with the ERMC resolution and act accordingly.


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Transaction Profile @ AoF


Based on Profession & Monthly income, the Volume of Transaction(s) should be declared.


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Offences & Punishment


Per the Prevention of Money Laundering Act 2012

Sec. 8. for providing false information on source &

identity of the client or nominee knowingly: either max.

3yr imprisonment or a fine of max. Tk 50 K or both.


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KYC : Client Information / profile standard must include :-

Identity, current address & contact numbers

Business information ( ownership, incorporation, directorsregulators)

Source of income and wealth verification. Account profile & activity (purpose, size, anticipated

transactions)

Current financial information,

Reference from reliable sources, Client meeting (personal, site visits & intended frequency of

meetings).



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So, Know your Customer means

Full identification evidence

Reason for relationship

Anticipated volume / type of activity

Source of funds

Underlying source of wealth

Regular review.



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KYC Basic Information requirements:

Mandatory checks for all parties to the a/c.

Status verification

Name, DOB & Nationality

Address, purpose of account

Source of funds

Anticipated volume & type of activity

Relationship between parties / signatories to the a/c

Special customers check Source of wealth.



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ID Documents standard:

(in support of name, Nationality & DOB Verification)

Personal Customers:

1. Current Valid Passport

2. Valid Driving License

3. Voter ID Card, Armed forces ID card

4. 4. Photo ID card fm. Reputed org/inst. Bearing photograph & signature ofthe applicant

Identification documents which do not bear photographs or signatures are

normally not appropriate as sole evidence of identity. Photocopies of

documents showing photographs & signatures should be plainly legible



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Thank You

Any Question ? ? ????