Operational Aspects of KYC: Wire Transfer

The Reserve Bank of India (RBI) has updated its wire transfer rules instructing banks and financial institutions to collect more information about wire transfers with effect from May 10, 2023. “The new rule applies to both domestic and international transfers.

“All cross-border wire transfers shall be accompanied by accurate, complete, and meaningful originator and beneficiary information…,” according to the updated instructions in the Master Direction of RBI. Thus, it is now obligatory for banks and other financial institutions to collect complete information about wire transfer senders and recipients.

“Domestic wire transfers of Rs 50,000 and above, where the originator is not an account holder of the ordering RE, shall also be accompanied by the originator and beneficiary information as indicated for cross-border wire transfers,” the RBI said. Also, domestic wire transfers, where the originator is an account holder of the ordering regulated entity (RE), should be accompanied by the originator and beneficiary information, as in the case of cross-border wire transfers. However, the RBI has clarified that these instructions do not apply to transfers to purchase goods or services via credit card, debit card, or prepaid payment instruments (PPI).

RBI further said RE processing an intermediary element of a chain of wire transfers should ensure that all originator and beneficiary information accompanying a wire transfer is retained with the transfer. Regulated entities have to report all wire transfers of more than Rs.50,000 to the Financial Intelligence Unit of India (FIU-IND). The FIU-IND is India’s central agency for receiving, processing, analyzing, and disseminating information relating to suspected or actual instances of money laundering or terrorist financing. However, the RBI has clarified that these instructions do not apply to transfers to purchase goods or services via credit card, debit card, or prepaid payment instruments (PPI).

As per updated regulations, Regulated Entities (Res) must collect the following information for all wire transfers:

1. The name of the sender and recipient (through officially valid documents)

2. The sender’s and recipient’s account numbers

3. The reason for the wire transfer

4. The source of the funds being transferred

Here are some of the implications of the new rules:

The move is aimed at preventing such transfers from being used for money laundering and terrorist financing. India recently announced a slew of measures to tackle money laundering, including the latest amendments to the Prevention of Money Laundering Act (PMLA), 2002.

Reduced anonymity for wire transfer senders and recipients: The information required about wire transfer senders & recipients will reduce the anonymity of these individuals, which could make it more difficult for them to launder money or finance terrorism.

Improved detection of money laundering and terrorist financing: The new rules will require banks and other financial institutions to report all wire transfers of more than Rs.50,000 to the FIU-IND. This will help the FIU-IND to identify and investigate potential cases of money laundering and terrorist financing.

The updated instructions have been included in the Master Direction on Know Your Customer (KYC) and are aligned with the relevant recommendation of the Financial Action Task Force (FATF). Under the new guidelines, all domestic wire transfers, where the originator is an account holder of the ordering RE, must be accompanied by the originator and beneficiary information.

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Operational Aspects of KYC: Wire Transfer

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