Reserve Bank of India amends Master Directions on KYC to extend Central KYC Records Registry compliance to legal entities

Introduction

To facilitate uniform, Know Your Customer (KYC) compliance requirements for all legal entities, the Reserve Bank of India (RBI) on 18 December 2020, amended the Master Direction - Know Your Customer Direction dated 25 February 2016 (Master Directions) (Amendment). This Amendment seeks to mandate all legal entities whose accounts are opened prior to 1 April 2021, to upload their KYC data onto the Central KYC Records Registry (CKYCR), pursuant to Rule 9 (1A) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PML Rules). The Amendment comes into force with immediate effect.

Highlights of the Amendment and comparison with the position prior to the Amendment

Other relevant aspects of the Amendment

This Amendment helps in streamlining the KYC process ensuring that it remains time efficient and promotes ease of use for both the REs and customers, through these additional provisions:

Time period for KYC compliance with the CKYCR

As part of the customer due diligence, under the provisions of Rule 9 (1A) of the PML Rules, every RE is required to capture customer’s KYC data and to file an electronic copy of the customer's KYC records with the central KYC records registry. Such filing must be made within 10 days from commencement of an account-based relationship with the customer.

Comments

In this digital age and, in the wake of new products, services and technologies, the primary objective of KYC compliance is to ensure that REs (including banks), monitor and prevent all fraudulent transactions. Further, such compliance aims at ensuring the highest standard of due diligence, to preclude any money laundering or financing of terrorist activities. Thus, KYC procedures seek to facilitate the understanding of REs towards their customers’ financial transactions, thereby assisting in better allocation and management of their customers’ risk profile in the most prudent and efficient manner.

With the objective of promoting ease of doing business, the Government had formed CKYCR as a centralised KYC repository, to reduce the cost and burden of maintaining KYC documents by each financial institution or intermediary. This had in turn authorised CERSAI, to perform the functions of and manage the CKYCR. Since the central registry is now fully operational for individual customers, as a logical corollary, RBI has extended the CKYCR compliance requirements to legal entities.

Further, this Amendment to the Master Directions is in line with the overarching goal of promoting digitisation by ensuring smooth KYC compliance through uploading of KYC data for all legal entities on to the CKYCR, in a judicious and time efficient manner. In the background of the pandemic, this Amendment furthering KYC digitisation is a welcome reform easing banking and financial transactions.

The updated KYC Master Direction, 2016 can be accessed here.

-     Atul Pandey (Partner) and Achint Kaur (Principal Associate)

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