The Article explain in short the Master Direction DBR.AML.BC.No.81/14.01.001/2015-16

Click to access MD18KYCF6E92C82E1E1419D87323E3869BC9F13.pdf

The RBI outlines these rules to ensure that financial institutions like banks and others follow proper procedures to verify the identity of their customers and prevent illegal activities such as money laundering or terrorist financing.

Key Features

• KYC Policy Elements:
  • Customer Acceptance Policy: Specifies how accounts should be opened and sets rules against opening accounts under fake or anonymous names.
  • Risk Management: Classifies customers into categories like low-risk, medium-risk, and high-risk based on their activities, identity, and financial behavior.
  • Customer Identification Procedure (CIP): Verifies a customer’s identity before opening an account or handling significant transactions.
  • Transaction Monitoring: Ensures all transactions align with the customer’s profile and are free of suspicious activity.
• What Banks Should Do:
  • Regularly update customer records to ensure accuracy.
  • Track and report large or suspicious transactions to the Financial Intelligence Unit of India (FIU-IND).
  • Perform due diligence based on the type of customer (individual, business, trust, etc.) and their risk level.
• Specific Rules for Different Entities:
  • Special procedures are outlined for opening accounts for sole proprietors, partnerships, companies, trusts, or foreign nationals.
  • “Small Accounts” with transaction limits are allowed for individuals without full documents, but they must follow stricter controls.
• Technological Innovations:
  • Features like video-based customer verification (V-CIP) or digital KYC are permitted for verifying identities without physical presence.
• Record Keeping:
  • Banks must maintain customer identification records and transaction logs for a minimum of five years.
• Reporting Obligations:
  • Banks need to report certain transactions to government agencies to meet regulatory and international compliance standards.
• Penalties for Non-Compliance:
  • Banks and employees could face legal consequences for failing to follow these rules or for enabling suspicious activities.

Why It Matters

These guidelines aim to build a secure and transparent financial system that:

• Protects individuals and businesses from fraud.
• Prevents misuse of financial services for illegal purposes.
• Upholds the trustworthiness of India’s banking sector globally.