What changed
RBI reiterated and clarified existing KYC/AML guidelines for UCBs, emphasizing ongoing monitoring of transactions from countries that don't apply FATF recommendations. It also reinforced the prohibition on relationships with shell banks and the need to verify foreign respondent institutions.
What it means for you
UCBs must now systematically screen transactions and business relationships involving persons from FATF-listed or deficient AML/CFT countries. They must also ensure no correspondent relationship allows shell bank access, with non-compliance attracting penalties under the Banking Regulation Act.
What you must do
- Review and update KYC/AML policies to include FATF statements and publicly available information on deficient countries.
- Implement enhanced monitoring for transactions with persons from FATF-listed or insufficiently compliant jurisdictions.
- Ensure no correspondent relationship is established with shell banks or foreign institutions that permit shell bank use.
- Document findings of unusual transactions and retain records for RBI or other authorities upon request.
Who it affects
Primary (Urban) Co-operative Banks, Compliance officers at UCBs, Correspondent banking teams at UCBs
What are FATF Statements and how should UCBs use them?
FATF Statements identify jurisdictions with deficiencies in AML/CFT regimes. UCBs must consider these statements, along with publicly available information, to identify countries that do not or insufficiently apply FATF recommendations and give special attention to transactions from such countries.
What is a shell bank and why can't UCBs deal with them?
A shell bank is a bank without a physical presence in any country. RBI prohibits UCBs from entering into relationships with shell banks or with foreign respondent institutions that allow their accounts to be used by shell banks, to prevent money laundering and terrorist financing.
What are the penalties for non-compliance with these guidelines?
These guidelines are issued under Section 35A of the Banking Regulation Act, 1949 (AACS). Any contravention or non-compliance may attract penalties under the same Act.