What changed
The amendment inserts an explanation in Rule 2 clarifying that transactions involving terrorism financing are covered under money-laundering rules. It replaces sub-rules 1A, 1B, and 1C of Rule 9 to mandate beneficial owner identification, ongoing due diligence, and a ban on anonymous or fictitious accounts.
What it means for you
Banks must now explicitly identify and verify beneficial owners behind clients, not just the named account holder. Ongoing monitoring of transactions must align with the client's risk profile and source of funds. Any transaction linked to terrorism financing must be flagged and reported. This tightens AML compliance and increases operational scrutiny.
What you must do
- Update KYC policies to include mandatory beneficial owner identification for all clients.
- Implement ongoing transaction monitoring systems to detect inconsistencies with client risk profiles.
- Train staff to recognize and report transactions potentially linked to terrorism financing.
- Ensure no new anonymous or fictitious accounts are opened and review existing ones for compliance.
Who it affects
All State and District Central Co-operative Banks, All banking companies, Financial institutions, Intermediaries covered under PMLA
What is the key change regarding beneficial owners?
Banks must now determine if a client is acting for a beneficial owner, identify that owner, and take reasonable steps to verify their identity. This goes beyond just knowing the client.
Does this amendment apply to co-operative banks?
Yes, the RBI circular is specifically addressed to all State and District Central Co-operative Banks, along with other banking companies and financial institutions.
What should we do about existing accounts?
You must ensure no anonymous or fictitious accounts are kept. Review existing accounts for compliance and apply ongoing due diligence to all business relationships.