What changed
RBI clarified that authorized persons must perform full-scale CDD on any money changing transaction where money laundering or terrorist financing is suspected, or when the customer does not appear low-risk. It also mandated filing a Suspicious Transaction Report (STR) with FIU-IND if the true identity of a customer cannot be confirmed, even for existing business relationships. Enhanced due diligence and senior-level approval are now explicitly required for transactions where a Politically Exposed Person (PEP) is the ultimate beneficial owner, including their family members and close relatives.
What it means for you
Banks and authorized persons must now treat any suspicion of money laundering or terrorist financing as a trigger for full CDD, not just for new customers but also for ongoing relationships. The STR filing requirement when identity is uncertain adds a new compliance burden, especially for money changers dealing with walk-in clients. Enhanced monitoring of PEPs as beneficial owners widens the scope of due diligence, requiring banks to update their risk management systems and train staff to identify such structures.
What you must do
- Update your KYC/AML policy to mandate full CDD for any money changing transaction where suspicion of money laundering or terrorist financing arises, or where the customer does not appear low-risk.
- Ensure your STR filing procedures include scenarios where the true identity of a customer (individual or business entity) cannot be confirmed, even for existing relationships.
- Revise your customer acceptance policy to require senior-level approval for transactions where a PEP is the ultimate beneficial owner, and implement enhanced ongoing monitoring for such cases.
- Train staff to identify PEPs, their family members, and close relatives, and to apply enhanced CDD when a customer becomes a PEP after relationship establishment.
- Clarify the Principal Officer's role to include oversight of all AML/CFT compliance, including STR filing and PEP monitoring.
Who it affects
Authorized Persons (banks, money changers, forex dealers), Compliance and AML teams, Branch managers handling foreign currency transactions, Principal Officers of authorized entities
When must we file an STR for a money changing transaction?
You must file an STR with FIU-IND if you cannot perform customer due diligence on a customer, or if you believe you no longer know the true identity of the customer, even for an existing business relationship.
Do the PEP rules apply if the PEP is not the direct customer but the beneficial owner?
Yes, the circular clarifies that enhanced CDD and senior-level approval requirements apply to individual transactions or business relationships where a PEP is the ultimate beneficial owner.
What should we do if a customer becomes a PEP after we have started a relationship?
You must perform enhanced CDD on such customers and have a sufficiently senior level decide whether to continue the business relationship.