Amendments to KYC Master Direction

The Reserve Bank of India (RBI) amended some provisions of the Know Your Customer (KYC) Direction, 2016, often referred to as ‘Master Direction’ in order to align them with the various changes made to different laws related to the same over the last few years. The move aims to align the KYC Direction with the amendments of:

• The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PMLA Rules,
• The Government order and directions named ‘Procedure for Implementation of Section 12A of the Weapons of Mass Destruction (WMD) & their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act, 2005)’, and
• The Financial Action Task Force (FATF ) recommendations.

Let us now dive into some of the key highlights of the changes made to the Master Direction by the RBI.

Aligning KYC Master Direction to the PMLA Rules

In the list of amendments, most vital changes aim to align the KYC Directions with the various changes that have recently been made to the PMLA Rules.

• The existing mark of controlling ownership percentage of 25% for companies and 15% for trusts to establish their beneficial ownership has been lowered to 10%.
• The amendments suggest a different notion of ‘group’ under the KYC Directions. Regulated Entities (REs) need to apply group wide policy to carry out their obligations under the Prevention of Money Laundering Act, 2002 and the guidelines mentioned therein, which includes tackling money laundering, efforts to finance terrorism and other similar risks.
• The definitions of the terms ‘Politically Exposed Individuals’ and ‘Non-Profit Organizations’ (NPO) were aligned with the PMLA Rules.
• REs must submit the details of the principal officer and designation director to the RBI.
• NPO customers must register on the DARPAN Portal - https://ngodarpan.gov.in/
• Records of such registration must be aptly maintained.

Regular Updation of KYC

The RBI introduced another way to update the KYC details periodically, i.e., via Aadhaar OTP based e-KYC in non-face-to-face mode. In addition, under the Master Directions amendments, individuals do not need to declare their current address details if the current address is different from the one mentioned in the Aadhaar. Furthermore, to prevent potential fraud, Regulated Entities will be responsible to ensure that the mobile number used to authenticate Aadhaar correctly matches with the individual’s profile.

It must also be noted that to comply with the PML Rules, all customers will be required to submit updated copies of the documents to the REs in case there is a need to update anything in the documents that were submitted by these customers when establishing their business relationship or account-based relationship.

Note: To update any details in the records at the REs end, the relevant documents must be submitted to the REs within 30 days of updating the details.

Customer Due Diligence

Another welcome addition under the amendments is the permission for REs to retrieve records and/or information by downloading them from the Central KYC Records Registry (KYCR) after getting the customer’s and the KYC identifier’s explicit approval.
Although KYC Directions had already defined a method for regulated entities to download data related to customer due diligence (CDD) from CKYCR and permitted REs to rely on such data acquired from another RE from the said CKYCR registry, the new amendments allow REs to acquire such details themselves when they need to open a customer account.

Enhanced Due Diligence

The enhanced due diligence measures introduced under the Master Directions include but are not limited to the following:

• REs must verify customer’s current address details before allowing operation in the account.
• REs shall verify the Permanent Account Number (PAN) they obtain from the customers.
• The accounts opened in non-face-to-face mode shall be strictly monitored using digital methods like CKYCR, digital locker and non-digital methods such as copies of passport, driving license, etc.

Adoption Obligations related to WMD Act

REs must make sure to duly comply with the requirements under the Government Order dated 30 January 2023, including (1) restricting any transactions related to the individuals or entities on the WMD Act’s sanctions list, (2) sending the entire details of such transaction attempts to the Central Nodal Office and the Reserve Bank of India, (3) verifying customers by referring to the sanctions list, and (4) taking apt actions to freeze and unfreeze their assets.

Adopting Technology and Innovation

Under the amendments, Registered Entities need to adopt technology innovations to monitor risks and conduct sanctions requirements screening daily. Such entities are also advised to use or develop technological solutions for purposes such as effective delivery of products, evaluating and managing risks, and to undertake due diligence steps for non-face-to-face customer accounts.

Conclusion

The Master Directions’ amendments were made by the RBI in order to promote apt implementation of legal, regulatory and operational steps to tackle money laundering and terrorist financing activities. These amendments shall help individuals regularly update their details, if required, while also helping the authorities prevent any unethical financial activities.