RBI Implements Six Major Changes to Know-Your-Customer (KYC) Regulations

The Reserve Bank of India (RBI) substantially overhauled its Know-Your-Customer (KYC) guidelines in a circular issued on November 6, 2024. From the date of issue, six major changes made in the KYC regulations, aiming for a more transparent and efficient KYC process, refined several key aspects of the KYC Master Directions.

What is KYC?

“Know Your Customer” is a regulatory process that financial institutions use to identify their customers. This helps prevent money laundering and terrorist financing while at the same time protecting financial institutions and their customers through the creation of a layer of security in financial transactions.

What is Digital KYC?

Digital KYC is an instant verification wherein the live photograph of the customer is clicked with the location coordinates. However, in cases where such offline verification is not feasible, a photograph of the customer taken by an authorised officer of the Reporting Entity (RE) along with a valid identification document or Aadhaar information is used.

RBI KYC Rules: Significant Changes

The RBI KYC guidelines have just been in the final leg of revising them in accordance with the newly enacted legislation. These legislative enactments include Prevention of Money Laundering (Maintenance of Records) Rules, 2005, and the Unlawful Activities (Prevention) Act, 1967. The said amendments are over six crucial concerns:

1. Customer Acceptance Policy

According to KYC Master Directions, Paragraph 10, CDD may be applied only by REs at the UCIC level. This means that in case a customer is already KYC compliant and holding an account with an RE, then he/ she would not be required to undergo a new CDD procedure for opening another account or availing of more services unless his/her identification changes.

2. High-Risk Accounts

For better clarity, the expression “High-risk accounts require intensified monitoring” has been included in both sub-paragraphs (a) and (b) of Paragraph 37.

3. Periodic KYC Updation

The word “updation” in Paragraph 38 has been interpreted as “periodic updation.” Therefore, REs have to periodically update KYC information about their customers.

4. CKYCR and KYC Information Sharing

To facilitate easier sharing and updating of KYC data with the Central KYC Records Registry, paragraph 56(h) has been amended. Periodic KYC updates require the financial institutions to upload or update KYC data pertaining to individual accounts, though older ones. Even earlier may be done if the information of a new customer is received. All the new information received by the REs shall be forwarded to CKYCR within seven days or any period prescribed by the government. The concerned institutions shall then be informed by CKYCR that new records are available. Further, Paragraph 56(j) mandates the KYC identifier of a customer to access CKYCR that would provide the KYC records. Customers will be sought to be furnished with further supporting documents only on account of changes in the details furnished by them, in case the downloaded information is inadequate, the documents have become obsolete or further checks are required for forming a risk profile of the customer.

5. Amendment to UAPA Designation

As per the corrigendum by the Government of India, April 22, 2024, the name in the designation under UAPA has been changed. The “Additional Secretary” is now replaced with “Joint Secretary” in Annex II of the KYC Master Directions.

6. From ‘Section’ to ‘Paragraph’

The last amendment is to change the word “section” to “paragraph” in all internal references within the KYC Master Directions. This is for standardizing the usage and making it easy to read, hence easily referring to specific instructions.

The changes mooted in the RBI’s KYC regulations have been aimed at bringing the procedure in line with the current legal requirements to make the process more streamlined and robust. It will improve the convenience of customers, and such changes help bring out the due compliance by financial institutions with regulatory requirements more effectively.