The Reserve Bank of India (RBI) has made changes to the Master Direction – Know Your Customer (KYC) Direction, 2016, in line with its July 2024 gazette notification amendments in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.
It issued instructions in this regard on November 6, 2024 which have become applicable with immediate effect. The KYC Master Direction provide rules for regulated entities to do KYC following the defined customer due diligence (CDD) process.
There are six modifications in the master direction in total.
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Paragraph 10:
One important modification is in Paragraph 10(f) of the Master Direction regarding customer acceptance policy. Now, regulated entities are required to apply CDD at the unique customer identification code (UCIC) level and not separately for each account opened, product, or service availed by the customer from the same regulated entity.
“If an existing KYC-compliant customer of a regulated entity desires to open another account or avail of any other product or service from the same regulated entity, there shall be no need for a fresh CDD exercise as far as identification of the customer is concerned,” says the notification.
Paragraph 37:
This paragraph talks about the extent of monitoring accounts based on their risk category. The amendment has shifted the word ‘Explanation’ from sub-para (a) and (b) of paragraph 37. Earlier, it read “Explanation: High risk accounts have to be subjected to more intensified monitoring”, but now “High risk accounts have to be subjected to more intensified monitoring”, will be applicable.
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Paragraph 38:
The phrase ‘periodic updation’ has been replaced with ‘updation’ for clarity in sub-paragraph (a) clause (ii) and (iv), and sub-paragraph (c) clauses (iii) and (iv).
Paragraph 56:
Para 56 is about the CDD procedure and sharing of KYC information with the central KYC records registry (CKYCR). Under this, two paras – ‘Paragraph 56(h)’ and ‘Paragraph 56(j) – have been amended.
Paragraph 56(h) – According to the definition in the paragraph, the regulated entities are required to update and/or upload the KYC data of individual customers and legal entities as per prescribed dates and update it periodically as mentioned in Para 38 of the Master Direction after receiving KYC from the customer.
According to the amendment if there are some additional information from a customer under Rule 9(1C) of the PML Rules, or clause (j), “the regulated entity shall within seven days or within such period as may be notified by the central government, furnish the updated information to CKYCR, which shall update the KYC records of the existing customer in CKYCR.”
CKYC will then inform all the reporting entities to update the KYC records of the concerned customers who have dealt with the customer and inform the regulated entities about the updation in the record of existing customers. Regulated entities will then retrieve the KYC record from CKYCR and update the records maintained by itself.
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Paragraph 56(j) - This deals with updating the KYC or verifying the identity of a customer.
The regulated entity shall seek KYC identified from a customer or retrieve it from CKYCR if available and shall not ask the customer to submit the same KYC records or any other identification document unless:
There is a change in information
The KYC record information is incomplete or not as per norms, or
If the regulated entity finds it necessary to obtain KYC to perform enhanced due diligence or build a customer’s risk profile
The amendment has also inserted one additional clause here: If “the validity period of the downloaded document has lapsed”.
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Annex II Of The MD On KYC
This amendment is the change in designation of Central Nodal Officer from ‘additional secretary’ to ‘joint secretary’ for the Unlawful Activities (Prevention) Act, 1967 (UAPA) regarding the ‘Procedure for Implementation of Section 51A’.
Provision To Be Read As Paragraph’ Instead Of ‘Section’:
The Master Direction provision will be read as ‘paragraph’ in place of ‘section’. So, wherever ‘section’ is mentioned in the master direction, it will be replaced with ‘paragraph’.