What changed
RBI clarified that full-scale CDD is mandatory before account opening whenever there is suspicion of money laundering/terrorist financing or when the customer does not appear low-risk. Banks must now file an STR with FIU-IND if they cannot complete CDD or are unsatisfied with the customer's true identity. The Principal Officer's role is expanded to explicitly cover overall compliance with KYC/AML/CFT guidelines and PMLA obligations. PEP-related instructions now explicitly apply to accounts where the PEP is the ultimate beneficial owner, and banks must apply enhanced CDD to PEPs, their close relatives, and accounts where PEP is the beneficial owner.
What it means for you
UCBs must tighten their account opening processes—any red flag on money laundering or terrorist financing triggers full CDD before onboarding. If a bank cannot verify a customer's identity, it must not only consider closing the account but also file an STR. The Principal Officer becomes the single point of accountability for all KYC/AML/CFT compliance, not just reporting. PEP screening must now cover beneficial owners and close relatives, requiring ongoing enhanced monitoring and senior management approval for continued relationships.
What you must do
- Update account opening procedures to mandate full-scale CDD before opening any account where money laundering/terrorist financing is suspected or the customer is not low-risk.
- Ensure that whenever CDD cannot be completed or the bank is unsatisfied with the customer's identity, an STR is filed with FIU-IND without delay.
- Review and formalize the Principal Officer's role to explicitly include overseeing overall KYC/AML/CFT compliance and PMLA obligations.
- Extend PEP screening and enhanced CDD to beneficial owners, close relatives of PEPs, and accounts where a PEP is the ultimate beneficial owner; obtain senior management approval for continuing such relationships.
- Train staff on the updated STR filing trigger and the expanded PEP definition to ensure consistent application.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Principal Officers of UCBs, Compliance and KYC/AML teams at UCBs, Senior management of UCBs
When must we file an STR under this circular?
You must file an STR with FIU-IND whenever you are unable to apply appropriate CDD measures or if you believe you no longer know the true identity of the account holder. This applies both before opening an account and for existing accounts.
Does the PEP requirement apply only to the account holder?
No. The circular clarifies that PEP instructions also apply to accounts where the PEP is the ultimate beneficial owner. Additionally, banks must apply enhanced CDD to close relatives of PEPs and accounts where a PEP is the beneficial owner.
What is the expanded role of the Principal Officer?
The Principal Officer must now oversee and ensure overall compliance with all KYC/AML/CFT guidelines issued by RBI, as well as obligations under the PMLA, 2002 and its rules. This goes beyond just monitoring and reporting transactions.