On 17th October 2023, RBI made certain amendments to the Master Direction – (Know Your Customer) Direction 2016. The following are the fundamental changes introduced in the master direction:
Expanded the definition of Customer Due Diligence (CDD)
The CDD definition has been detailed to include reliance on independent sources to identify and verify the customers and beneficial owners. Adequate measures must be applied to understand the nature of the customer’s business and its ownership and control structure. The CDD process is mandatory for account-based relationships, customers with occasional transactions amounting to INR 50,000 or more and any international money transfer.
Ongoing Due Diligence
The financial institutions are now required to monitor the account activities to ensure that the same aligns with the customer’s business activities, risk profile and the customer’s source of funds and wealth.
STR when CDD cannot be complied with
The financial institutions must consider filing a Suspicious Transaction Report with FIU-IND when CDD measures cannot be satisfactorily applied to the customer.
Updating Central KYC Record Registry
Now, the financial institutions are required to immediately obtain the CDD details from a third party or from the Central KYC registry (when reliance is placed on such a third party to carry out the CDD process) instead of the two days allowed earlier.
Restriction on applying simplified procedure for opening accounts by (NBFC)
The amended directions restrict the NBFCs from applying simplified measures when any high-risk indicator or ML/FT suspicion is observed. In such cases, a complete Customer Due Diligence process must be followed.
Business relationships involving PEP
The financial institutions must implement necessary systems and controls to identify the customer or beneficial owners as Politically Exposed Persons (PEP). Further, wherever applicable, the financial institutions must obtain information about the source of wealth, along with a source of funds.
The measures enhanced as applicable to PEP shall also be applied to the family members and close associates of PEP.
Principal Officer
The financial institutions must nominate a management-level person to act as AML Principal Officer.
Record Keepling of customers
The financial institutions are now required to maintain adequate records of all the customers, whether account holders or walk-in customers.
Enhanced Due Diligence (EDD) when the involved jurisdictions do not or insufficiently apply the FATF Recommendations
The financial institutions are called to adopt enhanced due diligence to the business relationships or transactions with a person associated with countries that do not apply FATF Recommendations effectively, and FATF has called its members to apply such measures.
Money Mules
The revised directions instruct the financial institutions to implement necessary measures to identify potential “Money Mule” accounts and report the same to the FIU-IND promptly by filing a Suspicious Transaction Report.
Correspondent Banking
In the case of correspondent banking relationships, the banks are now additionally required to understand the nature of the correspondent bank’s business, the bank’s reputation, the quality of its supervision and the status of any AML.CFT inquiries or investigations. Further, the AML/CFT controls of the correspondent bank must be assessed.
The banks are now restricted from establishing correspondent banking relationships with shell banks.
Wire Transfer
For domestic wire transfers, when the originator is not an account holder with the ordering bank, the ordering bank must accompany the transfer with a unique transaction reference number that allows tracing back the originator or the beneficiary.
Further, if the beneficiary entity or the authorities request wire transfer-related information, the same must be made available within three business days.
