The government amends KYC to include non-profit organisations and “politically exposed individuals.”

The Finance Ministry amended the Prevention of Money Laundering (Maintenance of Records) Rules to broaden the scope of Know Your Customer (KYC) standards to include Politically Exposed Persons (PEPs), non-profit organisations (NPOs), and those dealing in virtual digital assets (VDAs) as reporting entities.

Who are Politically Exposed Individuals (PEI)?

  • PEPs are individuals who have been entrusted with prominent public functions by a foreign country, according to the Finance Ministry’s modified PML Rules.
  • Heads of state or governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned enterprises, and key political party officials are all included.
  • Banks and financial institutions must keep records of PEP financial transactions and share them with the Enforcement Directorate when requested.

Other significant changes made

Keeping track of NPO/NGOs’ financial transactions

  • Financial institutions must register the details of their NGO clients on the Niti Aayog’s Darpan portal.
  • They must keep the record for five years after the business relationship between a client and a reporting entity ends or the account is closed, whichever comes first.

Beneficial owners’ definition is being tightened

  • The PMLA rules have been amended to tighten the definition of beneficial owners under the anti-money laundering law.
  • According to the amendments, any individual or group with 10% ownership in a’reporting entity’s client is now considered a beneficial owner, as opposed to the previous 25% ownership threshold.
  • Banks and financial institutions, real estate and jewellery firms, casino intermediaries, and crypto or virtual digital assets are among the reporting entities.

Information gathering from clients

  • Under anti-money laundering legislation, reporting entities such as banks and cryptocurrency platforms are required to collect information from their clients.
  • Previously, these entities were required to keep KYC details or records of documents proving their clients’ identities, as well as account files and business correspondence relating to clients.
  • They will now be required to collect information about their clients’ registered office address and principal place of business.
  • Furthermore, they are required to keep a record of all transactions, including cash transactions exceeding Rs 10 lakh.

Why is this being done?

  • FATF assessment: The amendments are significant in light of India’s proposed FATF assessment, which is expected later this year.
  • Risk-management systems: One of the FATF’s 40 recommendations is that financial institutions have risk-management systems in place to identify domestic and international PEPs.
  • Remove ambiguities: The overarching goal is to achieve legal uniformity and eliminate ambiguities prior to the FATF assessment.
And get notified everytime we publish a new blog post.