What changed
RBI clarified that when suspicion of money laundering or terrorist financing arises, RRBs must conduct full-scale customer due diligence before opening an account. If the bank cannot verify the true identity of an existing account holder, it must file a Suspicious Transaction Report with FIU-IND. For Politically Exposed Persons, the enhanced CDD and senior management approval requirements now explicitly cover cases where a PEP is the ultimate beneficial owner, not just the account holder. The Principal Officer's role is expanded to include overseeing overall compliance with KYC/AML/CFT guidelines and PMLA obligations.
What it means for you
RRBs must now treat any suspicion of money laundering or terrorist financing as a trigger for full CDD, not just low-risk assessments. If identity verification fails, closing the account alone is insufficient—an STR must be filed. PEP-related enhanced monitoring now extends to beneficial ownership structures, requiring banks to identify and monitor close relatives and beneficial owners. The Principal Officer becomes the single point of accountability for all KYC/AML/CFT compliance, increasing regulatory risk for non-compliance.
What you must do
- Update KYC/AML policies to mandate full-scale CDD before account opening whenever suspicion of money laundering or terrorist financing arises.
- Ensure that if the bank cannot verify a customer's identity, an STR is filed with FIU-IND before or after account closure.
- Extend enhanced due diligence and senior management approval to all accounts where a PEP is the ultimate beneficial owner, including close relatives.
- Revise the Principal Officer's role description to explicitly include oversight of overall KYC/AML/CFT compliance and PMLA obligations.
- Train frontline and compliance staff on the new triggers for CDD and STR filing, especially for PEP-related accounts.
Who it affects
Regional Rural Banks (RRBs), Compliance officers and Principal Officers of RRBs, Branch managers and account opening staff, AML/KYC teams in RRBs, FIU-IND reporting units
When must we file an STR for an existing account?
If you believe you no longer know the true identity of the account holder—for example, due to suspicion of money laundering or terrorist financing—you must file an STR with FIU-IND, even if you close the account.
Does the PEP rule apply only to the account holder?
No. The enhanced CDD and senior management approval requirements also apply when a PEP is the ultimate beneficial owner of an account, and to accounts of close relatives of PEPs.
What is the Principal Officer's expanded role?
The Principal Officer must now oversee and ensure overall compliance with all KYC/AML/CFT guidelines issued by RBI and obligations under PMLA, 2002, not just specific tasks.