Introduction: The Reserve Bank of India (RBI) has recently issued a crucial amendment to the Master Direction (MD) on KYC (Know Your Customer). This update specifically focuses on redefining Politically Exposed Persons (PEPs) within the regulatory framework. The changes aim to enhance clarity and streamline the process for Regulated Entities (REs) undertaking Customer Due Diligence (CDD) for their customers.
Detailed Analysis: In the communication (RBI/2023-24/107) addressed to the Chairpersons/CEOs of all regulated entities, the RBI emphasizes the need for a precise definition of PEPs. The amendment introduces an explanatory note within Section 41 of the Master Direction, providing a comprehensive understanding of PEPs.
According to the update, PEPs are individuals who have been entrusted with prominent public functions by a foreign country. This includes Heads of States/Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations, and important political party officials.
The previous sub-clause (xvii) of clause (a) of Section 3, which contained the definition of PEPs, has been removed for better clarity. The RBI underscores the significance of these changes in ensuring a more robust and transparent KYC process.
Regulated Entities are expected to incorporate these amendments into their existing KYC processes promptly. The revised definition aims to refine the identification of individuals with political exposure, reinforcing the integrity of the KYC framework.
Conclusion: The amendment to the Master Direction on KYC by the Reserve Bank of India marks a significant step towards enhancing the precision of identifying Politically Exposed Persons (PEPs). The inclusion of a detailed explanation within Section 41 provides a clearer understanding for Regulated Entities, ensuring a more effective implementation of Customer Due Diligence (CDD) processes.
These changes align with the RBI’s commitment to strengthening the regulatory framework and promoting financial integrity. Regulated Entities are advised to stay updated with such amendments and promptly integrate them into their compliance procedures. As the financial landscape evolves, these proactive measures contribute to a more resilient and secure financial ecosystem.
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Reserve Bank of India
RBI/2023-24/107
DOR.AML.REC.66/14.01.001/2023-24
January 04, 2024
The Chairpersons/ CEOs of all the Regulated Entities
Dear Sir/Madam,
Amendment to the Master Direction (MD) on KYC
Please refer to the Master Direction (MD) on KYC dated February 25, 2016, as amended from time to time, in terms of which Regulated Entities (REs) have to undertake Customer Due Diligence (CDD), as per the process laid out therein, for their customers.
2. In the extant Direction, the definition of Politically Exposed Persons (PEPs) is provided in sub-clause (xvii) of clause (a) of Section 3 of the MD on KYC. However, in order to provide better clarity, it has been decided to include the definition of PEPs as an explanation to Section 41 of the Master Direction as under:
“Explanation: For the purpose of this Section, “Politically Exposed Persons” (PEPs) are individuals who are or have been entrusted with prominent public functions by a foreign country, including the Heads of States/Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials.”
3. Consequently, the sub-clause (xvii) of clause (a) of Section 3 of the above quoted Master Direction has been removed. The relevant Sections of the MD on KYC are hereby amended to reflect the changes as mentioned above.
Yours faithfully,
(Saidutta Sangram Keshari Pradhan)
General Manager
