Regulations To Tackle Loopholes in Money Laundering Fight, Check Details News24 –

India has been facing major issues related to money laundering for many years. Despite various measures being taken, the masterminds behind these activities continue to exploit loopholes. On Wednesday, the Reserve Bank of India (RBI) took a significant step by revising the ‘Know Your Customer’ (KYC) norms. The RBI has made changes to the KYC regulations to align them with recent amendments to the Prevention of Money Laundering (Maintenance of Records) Rules and has also updated certain existing instructions.

A key change involves major amendments to the Master Direction – Know Your Customer (KYC) Direction, 2016. The Master Direction – KYC Direction, 2016, issued by the RBI, serves to regulate and streamline the process of customer identification and verification for financial institutions.

According to the amendments, regulated entities will now be required to apply the customer due diligence (CDD) procedure at the Unique Customer Identification Code (UCIC) level, rather than at the individual account level. This change is aimed at improving the identification process and further strengthening anti-money laundering efforts.

“Thus, if an existing KYC-compliant customer of a RE desires to open another account or avail any other product or service from the same RE, there shall be no need for a fresh CDD exercise as far as identification of the customer is concerned,” it said.

What is KYC?

Know Your Customer (KYC) is a process by which financial organisations check and verify the identities of their customers. KYC these days is very essential. It helps in avoiding unlawful actions. These unlawful actions include many illegal activities as well. Money laundering and terrorist financing are major threats to the financial system. KYC helps the organisation to conduct a background check and ensure that their customer is not associated with any unlawful activities. This protects both the firm and the client.

Here Are The Latest Amendments In The KYC Norms

These changes have came into force with immediate effects, according to circular released by RBI.

Amendments have also been made regarding CDD Procedure and sharing KYC information with the Central KYC Records Registry (CKYCR).

CKYBR is an official regulatory body, It collects, stores and retrieves a customer’s KYC in a digital format.

The RBI notified on 6 November, “the Master Direction on KYC has been amended to (a) align the instructions with the recent amendments carried out in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 vide Gazette Notification dated July 19, 2024, (b) incorporate instructions in terms of the corrigendum dated April 22, 2024 issued by the Government of India to the Order dated February 2, 2021 on the ‘Procedure for implementation of Section 51A of the Unlawful Activities (Prevention) Act, 1967’, and (c) revise certain existing instructions”

“Whenever the RE obtains additional or updated information from any customer…the RE shall within seven days or within such period as may be notified by the Central Government, furnish the updated information to CKYCR, which shall update the KYC records of the existing customer in CKYCR,” the RBI said.

Here Are The Official Changes Made-

• Paragraph 10 – Customer Acceptance Policy- Paragraph 10(f) of the Master Direction is amended to read as follows: REs shall apply the CDD procedure at the UCIC level. Thus, if an existing KYC compliant customer of a RE desires to open another account or avail any other product or service from the same RE, there shall be no need for a fresh CDD exercise as far as identification of the customer is concerned.
• Paragraph 37- The ‘Explanation’ that “High risk accounts have to be subjected to more intensified monitoring” is applicable to sub-paragraphs (a) and (b) of paragraph 37 and accordingly, the ‘Explanation’ has been shifted.
• Paragraph 38 – Updation/ Periodic Updation of KYC– To provide better clarity, the phrase ‘updation’ has been inserted with the phrase ‘periodic updation’ in the clauses (ii) and (iv) of sub-paragraph (a); and clauses (iii) and (iv) of sub-paragraph (c) of paragraph 38.
• Paragraph 56 – CDD Procedure and sharing KYC information with Central KYC Records Registry (CKYCR)- Paragraph 56(h) of the Master Direction is amended to read as follows: In order to ensure that all KYC records are incrementally uploaded on to CKYCR, REs shall upload/update the KYC data pertaining to accounts of individual customers and LEs opened prior to the above-mentioned dates as per clauses (e) and (f), respectively, at the time of periodic updation as specified in paragraph 38 of this Master Direction, or earlier, when the updated KYC information is obtained/received from the customer. Also, whenever the RE obtains additional or updated information from any customer as per clause (j) below in this paragraph or Rule 9(1C) of the PML Rules, the RE shall within seven days or within such period as may be notified by the Central Government, furnish the updated information to CKYCR, which shall update the KYC records of the existing customer in CKYCR. CKYCR shall thereafter inform electronically all the reporting entities who have dealt with the concerned customer regarding updation of KYC record of the said customer. Once CKYCR informs an RE regarding an update in the KYC record of an existing customer, the RE shall retrieve the updated KYC records from CKYCR and update the KYC record maintained by the RE. Paragraph 56(j) of the Master Direction is amended to read as follows: For the purpose of establishing an account-based relationship, updation/ periodic updation or for verification of identity of a customer, the RE shall seek the KYC Identifier from the customer or retrieve the KYC Identifier, if available, from the CKYCR and proceed to obtain KYC records online by using such KYC Identifier and shall not require a customer to submit the same KYC records or information or any other additional identification documents or details, unless–
• (i) there is a change in the information of the customer as existing in the records of CKYCR; or
• (ii) the KYC record or information retrieved is incomplete or is not as per the current applicable KYC norms; or
• (iii) the validity period of downloaded documents has lapsed; or (iv) the RE considers it necessary in order to verify the identity or address (including current address) of the customer, or to perform enhanced due diligence or to build an appropriate risk profile of the customer.

• Annex II of the MD on KYC– Based on the corrigendum dated April 22, 2024 issued by the Government of India to the Order dated February 2, 2021 regarding the ‘Procedure for implementation of Section 51A of the Unlawful Activities (Prevention) Act, 1967’, the designation of Central Nodal Officer for the UAPA has been changed from “Additional Secretary” to “Joint Secretary”.
• The provisions of Master Direction may henceforth be read as ‘paragraph’ instead of ‘section’. All internal cross-references to ‘section’ in the Master Direction on KYC have been replaced to be read as ‘paragraph’.