KYC Simplified: RBI’s Latest Changes Explained in 6 Key Points

By Gloria Methri

The Reserve Bank of India (RBI) has unveiled a series of updates to its Know Your Customer (KYC) guidelines, effective November 6, 2024. These updates are designed to align KYC processes with evolving legal frameworks, including the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, and the Unlawful Activities (Prevention) Act, 1967.

By refining identity verification standards, the RBI aims to streamline compliance for financial institutions while enhancing safeguards against financial crimes. These new measures also focus on fostering seamless data sharing, encouraging timely updates, and bolstering defences against illicit activities—marking a significant step toward a more robust and efficient financial ecosystem.

Why the Updates Matter

The move comes after RBI fined Manappuram Finance Limited USD 49,562 for not adhering to KYC guidelines. The monetary penalty was due to the company’s failings and responsibilities as a payment system operator. The regulator also fined Ola Financial Services USD 39,891 and Visa Worldwide USD 286,622 for regulatory violations.

Both Manappuram Finance and Ola Financial Services were discovered to have breached KYC regulations. The latter’s announcement came after it disclosed a possible USD 2,388,712 fraud carried out by an employee at its subsidiary.

These penalties highlight the pressing need for better compliance mechanisms. The updated KYC rules promise streamlined processes, improved data sharing via the Central KYC Records Registry (CKYCR), and enhanced monitoring for high-risk accounts.

Among these modifications, the central bank mentions:

1. Simplified Process for Existing Customers – Existing KYC-compliant customers can now open new accounts or access additional services without undergoing the Customer Due Diligence (CDD) process again.
2. Stronger Monitoring for High-Risk Accounts – Financial institutions must intensify monitoring for high-risk accounts, with clearer definitions provided in the updated guidelines.
3. Regular KYC Updates via CKYCR – Institutions must upload customer KYC data to the CKYCR within seven days, ensuring real-time updates across all reporting entities. Customers won’t need to resubmit documents unless their information changes.
4. Periodic Updates Made Mandatory – The term “updation” has been officially clarified as “periodic updation,” requiring institutions to maintain timely KYC reviews for all customers.
5. Changes to UAPA Procedures – The Central Nodal Officer under the Unlawful Activities (Prevention) Act will now be a Joint Secretary instead of an Additional Secretary, reflecting updated government designations.
6. Terminology Standardisation – For uniformity and clarity, References to “sections” in the RBI’s Master Direction have been replaced with “paragraphs.”

These amendments aim to simplify the KYC process for financial institutions and enhance the effectiveness of customer identification measures, ensuring compliance with anti-money laundering and counter-terrorism financing regulations.

Key points

• The RBI has updated its KYC guidelines to align with recent regulatory changes.
• Key amendments include simplified procedures for existing customers and enhanced monitoring of high-risk accounts.
• The data will be regularly updated through the Central KYC Records Registry (CKYCR).
• The role of the Central Nodal Officer in the Unlawful Activities (Prevention) Act has been revised.