What changed
RBI reiterated that banks must not allow professional intermediaries bound by client confidentiality (e.g., lawyers, CAs) to open or hold accounts on behalf of clients if they cannot disclose the true owner. This reinforces existing KYC/AML rules from the July 2009 Master Circular, specifically paragraph 2.5(iii) and 2.4(a).
What it means for you
Banks must now strictly enforce that any pooled or escrow accounts managed by lawyers, CAs, or similar intermediaries are only permitted if the intermediary can fully disclose the beneficial owner's identity. Failure to comply with this directive, issued under Section 35A of the Banking Regulation Act, 1949, may attract penalties. This closes a potential loophole for money laundering through professional intermediaries.
What you must do
- Review all existing accounts held by professional intermediaries (lawyers, CAs, stockbrokers) to ensure they can disclose beneficial owners; if not, close or freeze the accounts.
- Update your KYC/AML policy to explicitly prohibit opening accounts for intermediaries bound by client confidentiality that prevents beneficial owner identification.
- Train relationship managers and compliance teams on this circular's requirements, especially for pooled and escrow accounts.
- Document any exceptions or cases where intermediaries provide full beneficial owner details, and maintain audit trails.
Who it affects
All scheduled commercial banks (excluding RRBs), All India Financial Institutions, Local Area Banks, Compliance and KYC/AML teams, Professional intermediaries (lawyers, chartered accountants, stockbrokers) managing client funds
Can a lawyer open a client escrow account if they agree to disclose the client's identity?
Yes, if the lawyer can and does disclose the true identity of the beneficial owner to the bank, the account may be allowed. The key condition is that the intermediary must not be bound by any confidentiality that prevents such disclosure.
What happens if a bank already has such an account from a lawyer who refuses to disclose client details?
The bank must not allow the account to continue. It should be closed or frozen, as per the circular. Non-compliance may attract penalties under the Banking Regulation Act, 1949.
Does this apply to mutual funds or pension funds managed by intermediaries?
No, the circular specifically allows pooled accounts for entities like mutual funds and pension funds, as long as the bank can identify beneficial owners when funds are not co-mingled or can look through when co-mingled. The restriction targets intermediaries bound by client confidentiality.