RBI urges banks to adopt risk-based approach for KYC

RBI’s customer due diligence: On October 17, the Reserve Bank of India (RBI) tightened customer due diligence (CDD) norms, directing banks and regulated entities to implement a risk-based approach for the periodic updating of Know Your Customer (KYC) requirements. This move comes after a thorough review, leading to amendments in the Master Direction (MD) on KYC.

Regulated Entities (REs) are now required to conduct customer due diligence in accordance with the prescribed process for their clientele. The amendments align with the latest government directives concerning the Prevention of Money-Laundering Rules, the Unlawful Activities (Prevention) Act (UAPA), and the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act. The RBI has also updated specific instructions in alignment with the Financial Action Task Force (FATF) recommendations.

In the revised Master Directions, a risk-based approach for the periodic updating of KYC has been underlined, particularly for high-risk cases. The REs must ensure that the information collected during CDD remains current and pertinent.

Strict adherence to instructions

The updated guidelines stress strict adherence to instructions regarding account opening and transaction monitoring. This is to curb the operations of "Money Mules," individuals employed to launder proceeds from fraud schemes like phishing and identity theft. Banks are urged to diligently monitor and identify accounts being utilised as conduits for illegal activities, taking necessary actions and reporting suspicious transactions to the Financial Intelligence Unit of India (FIU-IND).

Moreover, the definition of customer due diligence (CDD) has been expanded. These amendments, outlined in the Master Direction, are effective immediately.

(With PTI inputs)