What changed
RBI clarified that whenever suspicion of money laundering or terrorist financing arises, or if a customer does not appear low-risk, banks must perform full customer due diligence before opening an account. It also specified that if a bank cannot apply appropriate CDD measures and is no longer satisfied with the customer's true identity, it must file a Suspicious Transaction Report (STR) with FIU-IND. For Politically Exposed Persons (PEPs), the existing instructions now explicitly apply to accounts where a PEP is the ultimate beneficial owner, and banks must apply enhanced CDD to PEPs, their close relatives, and accounts where a PEP is the beneficial owner. The Principal Officer's role is clarified to include overseeing and ensuring overall compliance with KYC/AML/CFT guidelines and PMLA obligations.
What it means for you
Banks must tighten their pre-account opening checks: any suspicion of money laundering or terrorist financing triggers full-scale CDD, not just simplified due diligence. If identity verification fails, banks cannot just walk away—they must file an STR with FIU-IND, adding a regulatory obligation. PEP rules now explicitly cover beneficial owners and close relatives, requiring senior management approval and enhanced ongoing monitoring for such accounts. Principal Officers now have a clearly defined responsibility to oversee all KYC/AML/CFT compliance, making them accountable for the bank's overall adherence to these norms.
What you must do
- Update account opening procedures to mandate full-scale CDD whenever there is suspicion of money laundering or terrorist financing, or if the customer does not appear low-risk.
- Ensure that if your bank cannot apply appropriate CDD measures and is no longer satisfied with a customer's identity, an STR is filed with FIU-IND before closing the account.
- Extend PEP-related CDD and enhanced monitoring to accounts where a PEP is the ultimate beneficial owner, and also to close relatives of PEPs.
- Clarify in your internal policies that the Principal Officer's role includes overseeing and ensuring overall compliance with all KYC/AML/CFT guidelines and PMLA obligations.
- Train frontline and compliance staff on these clarifications, especially the new STR filing trigger and the expanded PEP definition.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), All India Financial Institutions, Local Area Banks, Compliance and AML teams, Principal Officers, Branch managers and account opening staff
When must we file an STR under this clarification?
You must file an STR with FIU-IND when you are unable to apply appropriate CDD measures and believe you no longer know the true identity of the account holder. This applies even if you decide to close the account.
Does the PEP rule now apply to beneficial owners?
Yes. The clarification explicitly states that instructions for PEPs also apply to accounts where a PEP is the ultimate beneficial owner. Banks must also apply enhanced CDD to close relatives of PEPs and accounts where a PEP is the beneficial owner.
What is the Principal Officer's clarified responsibility?
The Principal Officer must oversee and ensure overall compliance with all regulatory guidelines on KYC/AML/CFT issued from time to time, as well as obligations under the Prevention of Money Laundering Act, 2002 and its rules.