Adopt risk-based approach for periodic updation of KYC: RBI asks banks

Mumbai, Oct 17, 2023 

The Reserve Bank on Tuesday tightened the customer due diligence (CDD) norms by asking banks and regulated entities to adopt a risk-based approach for periodic updation of KYC.

After a review, the central bank has made amendments to the Master Direction (MD) on Know Your Customer (KYC).

Regulated Entities (REs) have to undertake customer due diligence (CDD) as per the process for their customers.

The amendments follow the latest government instructions related to the Prevention of Money-Laundering Rules, Unlawful Activities (Prevention) Act (UAPA), and Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act.

The Reserve Bank said it has also updated certain instructions in accordance with the FATF recommendations.

The latest Master Directions said the risk-based approach for periodic updation of KYC has been amended to be read as: "REs shall adopt a risk-based approach for periodic updation of KYC ensuring that the information or data collected under CDD is kept up-to-date and relevant, particularly where there is high-risk".

It further said the instructions on opening accounts and monitoring of transactions should be strictly adhered to, in order to minimise the operations of "Money Mules", which are used to launder the proceeds of fraud schemes (like, phishing and identity theft) by criminals, who gain illegal access to deposit accounts.

"Banks shall undertake diligence measures and meticulous monitoring to identify accounts, which are operated as Money Mules and take appropriate action, including reporting of suspicious transactions to FIU-IND," according to the amended Master Direction.

It also widens the definition of customer due diligence (CDD).

The Reserve Bank said the amended provisions in the Master Direction will come into force with immediate effect.

[Press Trust of India]