What changed
RBI clarified that RRBs must use publicly available information, in addition to FATF statements, to identify jurisdictions with deficient AML/CFT application. Banks are now explicitly required to examine the background and purpose of transactions from such countries, especially those lacking economic or lawful purpose. The circular also reinforces the prohibition on relationships with shell banks and mandates due diligence on foreign correspondent institutions.
What it means for you
RRBs must tighten their KYC/AML monitoring for cross-border transactions, particularly those involving high-risk jurisdictions. This increases operational burden but reduces money laundering and terrorism financing risks. Non-compliance could lead to regulatory penalties, so banks need to update their internal policies and training programs accordingly.
What you must do
- Update KYC/AML policies to include monitoring of transactions from FATF-listed and other deficient jurisdictions.
- Train staff to identify and document transactions with no apparent economic or lawful purpose from high-risk countries.
- Ensure no correspondent relationship is established with shell banks; verify foreign institutions' policies on shell banks.
- Maintain written findings and documents for suspicious transactions and make them available to RBI/authorities on request.
Who it affects
All Regional Rural Banks (RRBs), Compliance and AML/KYC teams at RRBs, Correspondent banking relationships of RRBs
What are FATF Statements and how should RRBs use them?
FATF Statements identify jurisdictions with weak AML/CFT regimes. RRBs must use these statements, plus publicly available information, to flag high-risk countries and scrutinize related transactions.
What is a shell bank and why can't RRBs deal with them?
A shell bank has no physical presence or meaningful regulation. RBI prohibits RRBs from any relationship with shell banks and requires verification that foreign correspondents don't allow their accounts to be used by shell banks.
What happens if an RRB fails to comply with these guidelines?
Non-compliance attracts penalties under Section 35A of the Banking Regulation Act, 1949. This could include fines or other regulatory actions.