What changed
Previously, UCBs only needed to prepare customer risk profiles and apply enhanced due diligence on higher-risk customers. Now, they must systematically identify and assess ML/FT risks across customers, countries, geographies, products, services, transactions, and delivery channels. Banks are required to have board-approved policies and procedures to manage and mitigate these risks using a risk-based approach, with enhanced measures for medium or high-risk ratings.
What it means for you
UCBs must move from basic customer risk profiling to a comprehensive, enterprise-wide risk assessment covering all aspects of their operations. This will require significant investment in systems, training, and governance to identify and mitigate ML/FT risks effectively. Non-compliance can attract penalties under the Banking Regulation Act, so boards must prioritize this.
What you must do
- Conduct a thorough ML/FT risk assessment covering customers, geographies, products, services, transactions, and delivery channels.
- Develop and get board approval for policies, controls, and procedures to manage and mitigate identified risks using a risk-based approach.
- Implement enhanced due diligence measures for all customers, products, or services rated medium or high risk.
- Refer to the IBA guidance note (July 2009) for indicative lists of high-risk categories and use it as a benchmark for your own risk assessment.
- Ensure compliance with Section 35A of the Banking Regulation Act and PMLA Rules, 2005, and acknowledge receipt of this circular to your Regional Office.
Who it affects
All Primary (Urban) Co-operative Banks, Board of Directors of UCBs, Compliance and risk management teams of UCBs, Internal audit functions of UCBs
What is the key new requirement for UCBs under this circular?
UCBs must now identify and assess ML/FT risks not just for customers, but also for countries, geographies, products, services, transactions, and delivery channels. They need board-approved policies and enhanced due diligence for medium or high-risk items.
Can UCBs use external guidance for their risk assessment?
Yes, the circular explicitly mentions that the IBA guidance note on KYC/AML standards (July 2009) provides an indicative list of high-risk customers, products, services, and geographies. UCBs may use this as guidance for their own risk assessment.
What are the consequences of non-compliance with these guidelines?
These guidelines are issued under Section 35A of the Banking Regulation Act, 1949 (AACS) read with PMLA Rules, 2005. Any contravention or non-compliance will attract penalties under the B R Act, 1949 (AACS).