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Two day refresher course on NBFC Regulations – Mumbai

Fill the google form to register: https://forms.gle/ULq6zBhESo1rpZLKA

Following the success of our recent workshop in Bengaluru, we are delighted to announce our upcoming 2-day refresher course on RBI regulations for NBFCs in Mumbai!
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Refer our resources on SBR:

Online Workshop on Regulatory Concerns on Fair Lending Practices and KYC

Register here: https://forms.gle/cQ3RYWAwhqd3hqTs7
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Our resources on KYC can be accessed here.

Our resources on SBR:

AML/ CFT Compliances Expand – RBI Further Amends KYC Master Directions

– Chirag Agarwal | Executive | finserve@vinodkothari.com

Introduction

The Reserve Bank of India (“RBI” or “Regulator”) plays a pivotal role in India meeting its anti-money laundering (AML) and combating financing of terrorism (CFT) obligations as part of its membership with the Financial Actions Task Force (FATF). As the Regulator of the credit sector and payment systems it does so by  ensuring the implementation of robust and up-to-date Know Your Customer (KYC) norms vide its  Master Direction – Know Your Customer (KYC) Direction, 2016 (“KYC Directions”). With a possible FATF evaluation around the corner, on October 17, 2023, the RBI introduced significant amendments to these KYC directives through its notification titled – Amendment to the Master Direction on KYC (“Amendment”), impacting various regulated entities, including Non-Banking Financial Companies (NBFCs).

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KYC/AML risk categorisation of customers

Key Points as per the RBI’s Directions on Risk Management under the KYC and PML Regime

-Anita Baid | Vice President | anita@vinodkothari.com

In line with the Reserve Bank of India’s (RBI) directions on risk management under the Know Your Customer (KYC) norms and Anti-Money Laundering (AML) standards, Non-Banking Financial Companies (NBFCs) are required to categorize their customers into low, medium, and high-risk categories. This risk categorization plays a crucial role in determining the level of due diligence to be undertaken by the NBFC while establishing and maintaining relationships with customers. Here are some key points to consider regarding the risk categorization process for legal entities (corporate borrowers, LLPs, trust, etc.) as well for individual borrowers:

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PML Act and Rules: Recent changes may have new compliance requirements

-Team Finserv | finserv@vinodkothari.com

Background

Financial sector entities have to follow PMLA and related rules, including by way of KYC Directions. The Finance Ministry came up with various amendments pertaining to the Prevention of Money-Laundering Act, 2002 (“PML Act”) and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 (‘PML Rules’). The amendments pertain to revised thresholds for ascertainment of beneficial ownership (25% to 10%), implementation of group wide policies for compliance with provisions of Chapter IV, expanding the obligations under PMLA to service providers of virtual digital assets, etc.

Effective date and applicability:

The amendment shall be effective from the same date, i.e. March 07, 2023. It may be noted that the Master Direction – Know Your Customer (KYC) Direction, 2016  (‘KYC Directions’) are issued and updated by the regulator based on the amendment in PML Act and PML Rules. However, the Regulated Entities (RE) are required to ensure compliance with the provisions of PML Act and PML Rules, as amended from time to time. Hence, necessary steps must be taken based on the amendments.

Whether applicable to existing or new customers?

Customer Due Diligence (as required under the PML Act and Rules) is required to be undertaken at the time of commencement of a financial transaction or account-based relationship with the customer. Accordingly, necessary steps must be taken by the RE to ensure compliance with the Amendment Rules for all new customers or new financial transactions undertaken with existing customers after March 07, 2023. However, it is also pertinent to note rule 9(12) of the PML Rules which requires reporting entities to exercise continuous due diligence with respect to the business relationship with every clients.

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Simplifying the KYC process and business identifier

Anita Baid, Vice President | finserv@vinodkothari.com

Backdrop

The regulations for conducting customer identification and due diligence by financial sector entities have been laid down by RBI and SEBI, in accordance with the provisions of Prevention of Money Laundering Act and Rules. Under the current regime, the KYC process extends from physical KYC to digital and video-based KYC as well. The physical process of collecting KYC documents and verifying the same involves a lot of paperwork. On the other hand, the Digital KYC Process is a facility that allows lenders to undertake the KYC of custom​​ers via an authenticated application, specifically developed for this purpose, hence making it a paperless process. The Digital KYC process, however, also requires physical interaction. Video-based KYC is both paperless and without any physical intervention.

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NBFCs licensed for KYC authentication: Guide to the new RBI privilege for Aadhaar e-KYC Authentication

-Kanakprabha Jethani (kanak@vinodkothari.com)

Background

On September 13, 2021, the RBI issued a notification[1] (‘RBI Notification’) permitting all NBFCs, Payment System Providers and Payment System Participants to carry out authentication of client’s Aadhaar number using e-KYC facility provided by the Unique Identification Authority of India (UIDAI), subject, of course, to license being granted by MoF. The process involves an application to the RBI, onward submission after screening of the application by the RBI, then a further screening by UIDAI, and final grant of authentication by the MoF,

We discuss below the underlying requirements of the PMLA, Aadhaar Act and regulations thereunder (defined below) and other important preconditions for this new-found authorisation for NBFCs. Read more

Workshop on Effective Regulatory interface: Preparing for and handling RBI’s NBFC inspections

Registeration for the workshop have been closed. You may register your interest for a repeat workshop here here: https://forms.gle/RmwXa13DjuLBqhMU9

brochure-Training-on-KYC-1-1

Rationalisation of KYC- Measures for relief or technical advancement?

-Kanakprabha Jethani and Anita Baid (finserv@vinodkothari.com)

Background

Considering the resurgence of the Covid-19 pandemic on the economy, the RBI Governor, on May 5, 2021, announced several measures with a view to infuse liquidity in the economy, avoid another wave of borrower defaults[1] as well as aid in ease of business during the lockdown.

Out of the several measures announced by the Governor, one was to simplify the KYC process, which is the initial step of any lending transaction. Some of the amendments seem to provide immediate relief from compliance requirements and some are intended to encourage carrying out KYC compliances electronically, given the social distancing norms.

In this regard, the RBI has issued the following notifications:

  1. Periodic Updation of KYC – Restrictions on Account Operations for Non-compliance dated May 5, 2021[2]
  2. Amendment to the Master Direction (MD) on KYC dated May 10, 2021[3]

In this article we intend to discuss the prima facie implications of the amendments introduced by the aforesaid notifications. Read more