The Reserve Bank of India (RBI), while tightening the Customer Due Diligence (CDD) norms, has recently issued new guidelines for periodic updation of Know Your Customer (KYC) to strengthen the customer verification system.
As per this new norm, banks and Non-Banking Financial Companies (NBFCs) have been directed to adopt a risk-based approach regarding KYC updates from time to time.
The Regulated Entities (REs) will be required to undertake CDD according to the process for their customers. It will be the responsibility of REs to ensure that the information collected during CDD is current and relevant accordingly.
RBI introduces changes in Master Direction
This move comes after a complete review wherein the apex bank has amended the Master Direction (MD) guidelines on KYC. According to this, banks, NBFCs and other entities under the purview of the RBI will have to conduct due diligence of their customers based on the prescribed procedures.
What is the reason for this change?
The RBI amendment came after the government’s new instructions related to the Anti-Money Laundering Rules, Unlawful Activities (Prevention) Act (UAPA) and Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act.
Furthermore, the central bank has stated the instructions on opening accounts and monitoring transactions should be strictly adhered to minimise the operations of ‘money mules’, which are often used to launder the proceeds of fraud schemes such as identity and phishing theft by scammers, who gain illegal access to deposit accounts.
Norms made as per the recommendations of the FATF
The RBI said that it had also updated some instructions as per the recommendations of the Financial Action Task Force (FATF).
As per the RBI, the latest master instructions mention that the risk-based approach for periodic updates of KYC has been suitably changed. This particular step has been initiated to ensure that information collected as part of customer investigations is retained, especially in high-risk cases.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
