The Reserve Bank of India today issued the Master Direction on Know Your Customer (KYC), Anti-Money Laundering (AML) and Combating of Financing of Terrorism (CFT). The Master Direction issued today consolidates all relevant instructions issued by different departments of the Reserve Bank so far on the subject and will be applicable to all its regulated entities.

Background

The Reserve Bank of India has started issuing Master Directions on all regulatory matters beginning January 2016 to streamline compliance in pursuance of the decision announced in the Fourth Bi-monthly Monetary Policy Statement, 2015-16 on September 29, 2015. The Master Directions consolidate instructions on rules and regulations framed by the Reserve Bank under various Acts including banking issues and foreign exchange transactions. The process of issuing Master Directions involves issuing one Master Direction for each subject matter covering all instructions on that subject. Any change in the rules, regulation or policy is communicated during the year by way of circulars/press releases. The Master Directions will be updated suitably and simultaneously whenever there is a change in the rules/regulations or there is a change in the policy. Explanations of rules and regulations will be issued by way of Frequently Asked Questions (FAQs) after issue of the Master Directions in easy to understand language wherever necessary. The existing set of Master Circulars issued on various subjects will stand withdrawn with the issue of the Master Direction on the subject.

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Related Notification is as follows :-

RBI/DBR/2015-16/18

Master Direction DBR.AML.BC.No.81/14.01.001/2015-16

February 25, 2016

(Updated as on April 20, 2018)

Master Direction – Know Your Customer (KYC) Direction, 2016

In terms of the provisions of Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, Regulated Entities (REs) are required to follow certain customer identification procedures while undertaking a transaction either by establishing an account based relationship or otherwise and monitor their transactions. 1REs shall take steps to implement provisions of Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, as amended from time to time, including operational instructions issued in pursuance of such amendment(s). The revised Master Direction is in accordance with the changes carried out in the PML Rules vide Gazette Notification GSR 538 (E) dated June 1, 2017 and thereafter and is subject to the final judgment of the Hon’ble Supreme Court in the case of Justice K.S. Puttaswamy (Retd.) & Anr. V. Union of India, W.P. (Civil) 494/2012 etc. (Aadhaar cases).

2. Accordingly, in exercise of the powers conferred by Sections 35A of the Banking Regulation Act, 1949 and the Banking Regulation Act (AACS), 1949, read with Section 56 of the Act ibid and Rule 9(14) of Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest to do so, hereby issues the Directions hereinafter specified.

CHAPTER – I
PRELIMINARY

1. Short Title and Commencement.

(a) These Directions shall be called the Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016.

(b) These directions shall come into effect on the day they are placed on the official website of the Reserve Bank of India.

2. Applicability

(a) The provisions of these Directions shall apply to every entity regulated by Reserve Bank of India, more specifically as defined in 3 (b) (xiii) below, except where specifically mentioned otherwise.

(b) These directions shall also apply to those branches and majority owned subsidiaries of the REs which are located abroad, to the extent they are not contradictory to the local laws in the host country, provided that:

i. where applicable laws and regulations prohibit implementation of these guidelines, the same shall be brought to the notice of the Reserve Bank of India.

ii. in case there is a variance in KYC/AML standards prescribed by the Reserve Bank of India and the host country regulators, branches/ subsidiaries of REs are required to adopt the more stringent regulation of the two.

iii. branches/ subsidiaries of foreign incorporated banks may adopt the more stringent regulation of the two i.e. standards prescribed by the Reserve Bank of India and their home country regulators.

Provided that this rule shall not apply to ‘small accounts’ referred to in Section 23 of Chapter VI

3. Definitions

In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below:

(a) Terms bearing meaning assigned in terms of Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005:

i. 2“Aadhaar number”, as defined under sub-section (a) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, henceforth ‘The Aadhaar Act’, means an identification number issued to an individual by Unique Identification Authority of India (UIDAI) on receipt of the demographic information and biometric information as per the provisions of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016.

Explanation 1: In terms of the Aadhaar Act, every resident shall be eligible to obtain an Aadhaar number.

Explanation 2: Aadhaar will be the document for identity and address.

ii. “Act” and “Rules” means the Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, respectively and amendments thereto.

iii. 3“Authentication”, as defined under sub-section (c) of section 2 of the Aadhaar Act, means the process by which the Aadhaar number along with demographic information or biometric information of an individual is submitted to the Central Identities Data Repository (CIDR) for its verification and such Repository verifies the correctness, or the lack thereof, on the basis of information available with it;

iv. Beneficial Owner (BO)

a. Where the customer is a company, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical persons, has/have a controlling ownership interest or who exercise control through other means.

Explanation- For the purpose of this sub-clause-

1. “Controlling ownership interest” means ownership of/entitlement to more than 25 per cent of the shares or capital or profits of the company.

2. “Control” shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.

b. Where the customer is a partnership firm, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has/have ownership of/entitlement to more than 15 per cent of capital or profits of the partnership.

c. Where the customer is an unincorporated association or body of individuals, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has/have ownership of/entitlement to more than 15 per cent of the property or capital or profits of the unincorporated association or body of individuals.

Explanation: Term ‘body of individuals’ includes societies. Where no natural person is identified under (a), (b) or (c) above, the beneficial owner is the relevant natural person who holds the position of senior managing official.

d. Where the customer is a trust, the identification of beneficial owner(s) shall include identification of the author of the trust, the trustee, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

v. 3“Biometric information”, as defined in the Section 2(g) of the Aadhaar Act, means photograph, finger print, Iris scan, or such other biological attributes of an individual as may be specified by Aadhaar (authentication) regulations;

vi. 3“Central Identities Data Repository” (CIDR), as defined in Section 2(h) of the Aadhaar Act, means a centralised database in one or more locations containing all Aadhaar numbers issued to Aadhaar number holders along with the corresponding demographic information and biometric information of such individuals and other information related thereto

vi. “Central KYC Records Registry” (CKYCR) means an entity defined under Rule 2(1)(aa) of the Rules, to receive, store, safeguard and retrieve the KYC records in digital form of a customer.

vii. 3“Demographic information”, as defined in Section 2(k) of the Aadhaar Act, includes information relating to the name, date of birth, address and other relevant information of an individual, as may be specified by regulations for the purpose of issuing an Aadhaar number, but shall not include race, religion, caste, tribe, ethnicity, language, records of entitlement, income or medical history;

ix. “Designated Director” means a person designated by the RE to ensure overall compliance with the obligations imposed under chapter IV of the PML Act and the Rules and shall include:-

a. the Managing Director or a whole-time Director, duly authorized by the Board of Directors, if the RE is a company,

b. the Managing Partner, if the RE is a partnership firm,

c. the Proprietor, if the RE is a proprietorship concern,

d. the Managing Trustee, if the RE is a trust,

e. a person or individual, as the case may be, who controls and manages the affairs of the RE, if the RE is an unincorporated association or a body of individuals, and

f. a person who holds the position of senior management or equivalent designated as a ‘Designated Director’ in respect of Cooperative Banks and Regional Rural Banks.

Explanation. – For the purpose of this clause, the terms “Managing Director” and “Whole-time Director” shall have the meaning assigned to them in the Companies Act, 2013.

x. 3”Enrolment number” means “Enrolment ID” as defined in Section 2(1)(j) of the Aadhaar (Enrolment and Update) Regulation, 2016 which means a 28 digit Enrolment Identification Number allocated to residents at the time of enrolment of Aadhaar.

xi. 3“E-KYC authentication facility”, as defined in Aadhaar (Authentication) Regulations, 2016, means a type of authentication facility in which the biometric information and/or OTP and Aadhaar number securely submitted with the consent of the Aadhaar number holder through a requesting entity, is matched against the data available in the CIDR, and the Authority returns a digitally signed response containing e-KYC data along with other technical details related to the authentication transaction;

xii. 3“Identity information”, as defined in sub-section (n) of section 2 of the Aadhaar Act, in respect of an individual, includes individual’s Aadhaar number, biometric information and demographic information;

xiii. “Non-profit organisations” (NPO) means any entity or organisation that is registered as a trust or a society under the Societies Registration Act, 1860 or any similar State legislation or a company registered under Section 8 of the Companies Act,2013.

xiv. 3 “Officially Valid Document” (OVD) means the passport, the driving licence, the Voter’s Identity Card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government, letter issued by the National Population Register containing details of name and address.

Explanation 1.-For the purpose of this clause, a document shall be deemed to be an OVD even if there is a change in the name subsequent to its issuance provided it is supported by a marriage certificate issued by the State Government or Gazette notification, indicating such a change of name.

xv. “Person” has the same meaning assigned in the Act and includes:

a. an individual,

b. a Hindu undivided family,

c. a company,

d. a firm,

e. an association of persons or a body of individuals, whether incorporated or not,

f. every artificial juridical person, not falling within any one of the above persons (a to e), and

g. any agency, office or branch owned or controlled by any of the above persons (a to f).

xvi. “Principal Officer” means an officer nominated by the RE, responsible for furnishing information as per rule 8 of the Rules.

xvii. 3“Resident”, as defined under sub-section (v) of section 2 of the Aadhaar Act, means an individual who has resided in India for a period or periods amounting in all to one hundred and eighty-two days or more in the twelve months immediately preceding the date of application for enrolment for Aadhaar;

xviii. “Suspicious transaction” means a “transaction” as defined below, including an attempted transaction, whether or not made in cash, which, to a person acting in good faith,:

a. gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or

b. appears to be made in circumstances of unusual or unjustified complexity; or

c. appears to not have economic rationale or bona-fide purpose; or

d. gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.

Explanation: Transaction involving financing of the activities relating to terrorism includes transaction involving funds suspected to be linked or related to, or to be used for terrorism, terrorist acts or by a terrorist, terrorist organization or those who finance or are attempting to finance terrorism.

xix. A ‘Small Account’ means a savings account in which:

a. the aggregate of all credits in a financial year does not exceed rupees one lakh;

b. the aggregate of all withdrawals and transfers in a month does not exceed rupees ten thousand; and

c. the balance at any point of time does not exceed rupees fifty thousand. 4Provided, that this limit on balance shall not be considered while making deposits through Government grants, welfare benefits and payment against procurements.

xx. “Transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or the arrangement thereof and includes:

a. opening of an account;

b. deposit, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means;

c. the use of a safety deposit box or any other form of safe deposit;

d. entering into any fiduciary relationship;

e. any payment made or received, in whole or in part, for any contractual or other legal obligation; or

f. establishing or creating a legal person or legal arrangement.

xxi. 3“Yes/No authentication facility”, as defined in Aadhaar (Authentication) Regulations, 2016, means a type of authentication facility in which the identity information and Aadhaar number securely submitted with the consent of the Aadhaar number holder through a requesting entity, is then matched against the data available in the CIDR, and the Authority responds with a digitally signed response containing “Yes” or “No”, along with other technical details related to the authentication transaction, but no identity information.

(b) “Terms bearing meaning assigned in this Directions, unless the context otherwise requires, shall bear the meanings assigned to them below:

i. “Common Reporting Standards” (CRS) means reporting standards set for implementation of multilateral agreement signed to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters.

ii. “Customer” means a person who is engaged in a financial transaction or activity with a Regulated Entity (RE) and includes a person on whose behalf the person who is engaged in the transaction or activity, is acting.

iii. “Walk-in Customer” means a person who does not have an account based relationship with the RE, but undertakes transactions with the RE.

iv. 5“Customer Due Diligence (CDD)” means identifying and verifying the customer and the beneficial owner.

v. “Customer identification” means undertaking the process of CDD.

vi. “FATCA” means Foreign Account Tax Compliance Act of the United States of America (USA) which, inter alia, requires foreign financial institutions to report about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.

vii. “IGA” means Inter Governmental Agreement between the Governments of India and the USA to improve international tax compliance and to implement FATCA of the USA.

viii. “KYC Templates” means templates prepared to facilitate collating and reporting the KYC data to the CKYCR, for individuals and legal entities.

ix. “Non-face-to-face customers” means customers who open accounts without visiting the branch/offices of the REs or meeting the officials of REs.

x. “On-going Due Diligence” means regular monitoring of transactions in accounts to ensure that they are consistent with the customers’ profile and source of funds.

xi. “Periodic Updation” means steps taken to ensure that documents, data or information collected under the CDD process is kept up-to-date and relevant by undertaking reviews of existing records at periodicity prescribed by the Reserve Bank.

xii. “Politically Exposed Persons” (PEPs) are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States/Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc.

xiii. “Regulated Entities” (REs) means

a. all Scheduled Commercial Banks (SCBs)/ Regional Rural Banks (RRBs)/ Local Area Banks (LABs)/ All Primary (Urban) Co-operative Banks (UCBs) /State and Central Co-operative Banks (StCBs / CCBs) and any other entity which has been licenced under Section 22 of Banking Regulation Act, 1949, which as a group shall be referred as ‘banks’

b. All India Financial Institutions (AIFIs)

c. All Non-Banking Finance Companies (NBFC)s, Miscellaneous Non-Banking Companies (MNBCs) and Residuary Non-Banking Companies (RNBCs).

d. All Payment System Providers (PSPs)/ System Participants (SPs) and Prepaid Payment Instrument Issuers (PPI Issuers)

e. All authorised persons (APs) including those who are agents of Money Transfer Service Scheme (MTSS), regulated by the Regulator.

xiv. “Shell bank” means a bank which is incorporated in a country where it has no physical presence and is unaffiliated to any regulated financial group.

xv. “Wire transfer” means a transaction carried out, directly or through a chain of transfers, on behalf of an originator person (both natural and legal) through a bank by electronic means with a view to making an amount of money available to a beneficiary person at a bank.

xvi. “Domestic and cross-border wire transfer”: When the originator bank and the beneficiary bank is the same person or different person located in the same country, such a transaction is a domestic wire transfer, and if the ‘originator bank’ or ‘beneficiary bank’ is located in different countries such a transaction is cross-border wire transfer.

(c) All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act or the Reserve Bank of India Act, or the Prevention of Money Laundering Act and Prevention of Money Laundering (Maintenance of Records) Rules, any statutory modification or re­enactment thereto or as used in commercial parlance, as the case may be.

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