Many changes were made to KYC in the latest MD amendment

Keeping in view the anonymous and instantaneous nature of VDA transfers and the potential of services offered by SPs being misused by state and non-state actors for money laundering, terror financing, and proliferation financing, all SPs
must have a robust mechanism in place for complying with KYC requirements before on-boarding of clients/ wallets as well as for carrying out re-KYC of existing customers. The Reserve Bank of India on April 28, 2023, carried out certain amendments to KYC Master Direction 2016.

Key changes are as follows;

Identification of beneficial owner:

The threshold limit for ‘controlling ownership interest’ for the beneficial owner (BO) has been revised to 10 percent both for companies and trusts from earlier threshold limits of 25 percent and 15 percent respectively.

However, in the case of the entity being the owner of the controlling interest, it is not necessary to identify and verify the identity of the following.

• any shareholder or beneficial owner if an entity is listed on the stock exchange in India,
• If the entity is resident in jurisdictions notified by the Central Government and listed on stock exchanges in such jurisdictions, or it is a subsidiary of such listed entities.

The latest KYC amendment related to Customer Due Diligence (CDD)

The Customer Due Diligence (CDD) measures for non-individual customers, individual customers, and Sole Proprietary Firms have been amended to include certain additional information/document requirements. To know more read: KYC amendment related to CDD

Further, under a recent amendment to KYC Master Direction, RBI on Thursday (May 4) advised Regulated Entities (RE) like banks and financial institutions to undertake certain measures while dealing with the Wire Transfer in terms of said amendment.

To know the details regarding ‘Information requirements for cross-border as well as domestic wire transfers in terms of latest guidelines’ Click ‘Wire Transfer’

The changes carried out in the MD to other instructions are listed below.

* Definitions of “Non-profit organisations” and “Politically Exposed Persons” have been amended to align those with the definitions in the PML Rules.

* Where the GST number is available, it shall be verified through the search/verification facility provided by the issuing authority.

* The indicative list of parameters for risk categorization has been expanded to include geographical risk covering customers as well as transactions, type of products/services offered, a delivery channel used for delivery of products/services, types of transactions undertaken, etc. REs shall treat the risk categorization and reasons for risk categorization of customers as confidential.

* In the cases of account opening using Aadhaar OTP-based e-KYC, in non-face-to-face mode, following risk-mitigating measures for such accounts, the following lines have been added in the process –

“REs shall ensure that transaction alerts, OTP, etc., are sent only to the mobile number of the customer registered with Aadhaar. REs shall have a board-approved policy delineating a robust process of due diligence for dealing with requests for change of mobile number in such accounts.”

* Certain instructions about V-CIP infrastructure and disruption in the V-CIP have been amended. Further, the requirement of ‘three days’ for – (i) the validity of the Aadhaar XML file / Aadhaar Secure QR Code and (ii) undertaking the video process has been amended to ‘three working days’.

* Ongoing due diligence

For ongoing due diligence, REs may consider adopting appropriate innovations including artificial intelligence and machine learning (AI & ML) to support effective monitoring.

* Requirements/obligations under International Agreements – A new Section 54A about Communications from international agencies, has been introduced requiring REs to leverage the latest technological innovations and tools for effective implementation of name screening to meet the sanctions requirements.

* Secrecy obligations

It has been clarified that secrecy obligations shall extend to all Regulated Entities.

*Instructions on the CKYCR

Instructions have been amended to ensure that KYC documents downloaded from the CKYCR, but whose validity has lapsed, are not used for KYC purposes by downloading REs.

*The requirement to allot Unique Customer Identification Codes (UCIC) to customers has been extended to all Regulated Entities.

* Instructions on Hiring Employees and Training have been amended to include elements of open communication, high integrity, and proper understanding of subject matter amongst the REs’ staff dealing with KYC/AML/CFT matters.

*Section 72 regarding “Adherence to Know Your Customer (KYC) guidelines by NBFCs/RNBCs and persons authorised by NBFCs/RNBCs including brokers/agents, etc.”, has since been deleted.

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