While the Reserve Bank of India (RBI) recently asked banks to partially freeze (allowing credits but not debits) the accounts of customers who have not complied with Know Your Customer (KYC) rules despite repeated requests, HSBC India CEO Stuart Milne said such regulations were making it more difficult for unbanked individuals to be financially included.
Responding to an observation by Ghana’s Vice-President Kwesi Amissah-Arthur on how KYC norms were preventing more people from being included in the formal banking sector at the India Economic Summit here on Thursday, Milne said, “I represent a global bank and what we are seeing is that the drift of financial regulation from the US and the UK, in particular, is actually turning us global banks into agents of exclusion than inclusion”.
Amissah-Arthur had said that Ghana’s efforts to bring more people into the banking fold had been frustrated by KYC regulations since it was difficult to comply with many of the stipulations in developing countries.
He said providing permanent addresses and material identification, such as passports, were difficult propositions for many Ghanaians, a problem similar to India’s.
“We are penalised for non-compliance with KYC requirements. Our systems are different from Western nations, many don’t have permanent addresses, passports or own their property or pay utility bills. So, KYC requirements run against the development we want,” he said.
The Vice-President believed that information and communication technology could provide a solution with biometric identification, such as the Bank of Ghana’s E-Zwich platform.
“KYC, while it’s important in the fight against terrorism and money laundering, is creating other problems. That has been our experience,” he added.
Milne said KYC rules were turning away customers who had been served for years by banks.
“The penalties for getting these things wrong are high. Banks are exiting portfolios of customers we’d been happy to serve for many years. The key point is how we bridge the gap between what the global regulator is saying and what’s actually required in developing markets,” he said.
The sentiment was echoed by Ajith Nivard Cabraal, Governor, Central Bank of Sri Lanka, who related the island nation’s experience.
“We’ve found most banks and telecom companies to be burdened by KYC rules and have to realise these instruments have been brought in from more evolved countries. It’s important to be sensible and have provided guidelines for surveillance to be relaxed for small transactions,” he said.