This Master Direction on Know Your Customer (KYC), originally issued by the Reserve Bank of India on 2016-02-25 and updated multiple times through 2025, consolidates RBI requirements on customer identification, customer due diligence (CDD), beneficial ownership, record maintenance and reporting related to anti-money laundering (AML) and countering financing of terrorism (CFT). As an RBI-authorised Full-Fledged Money Changer (FFMC), you must follow these rules where applicable.
What this Direction is about
The Direction implements India’s legal AML/CFT framework (PML Act, PML Rules) and FATF standards. It requires Regulated Entities (REs) to adopt formal KYC policies, identify and verify customers (including beneficial owners), apply risk-based due diligence (enhanced or simplified as needed), maintain records and report suspicious transactions to the Financial Intelligence Unit - India (FIU-IND).
Key requirements and changes relevant to money changers
- Applicability: Applies to every RBI-regulated entity, including FFMCs; also applies to branches or majority-owned subsidiaries abroad subject to host-country law and where not contradictory.
- Customer Identification Procedure (CIP): Verify customer identity using officially valid documents or Aadhaar (where applicable). Capture KYC details before establishing an account-based relationship or conducting specified transactions.
- Customer Due Diligence (CDD): Perform risk-based CDD for individuals and entities. Maintain procedures for individuals, sole proprietorships and legal entities, including identification of beneficial owners (BOs).
- Beneficial Ownership: For companies/partnerships/trusts/bodies of individuals, identify natural persons with >10% (15% for unincorporated bodies) ownership or who exercise control; if none found, identify senior managing official.
- Digital KYC & CKYCR: The Direction recognises digital KYC (live photo plus document/Aadhaar proof) and central KYC registry (CKYCR) processes. Use these where permitted and feasible.
- Record Management: Maintain KYC records and transaction records per PML Rules timelines; ensure records are retrievable for audits and reporting.
- Reporting: Report suspicious transactions and comply with FIU-IND reporting requirements.
- Designated Director: REs must have a designated director (senior official) responsible for AML compliance.
Practical action points for FFMC staff
- Update your written KYC and AML policy to align with the Master Direction and later updates (notably CKYCR and digital KYC provisions).
- Ensure front-line staff verify customer identity using acceptable documents (passport, Aadhaar where lawful, voter ID, PAN, etc.) and record details before completing foreign exchange transactions that trigger CDD.
- Capture beneficial owner information for corporate or non-individual customers; obtain declarations and documentary evidence for ownership and control.
- Adopt risk-based CDD: classify customers as low/medium/high risk; apply Enhanced Due Diligence (EDD) for high-risk customers (e.g., PEPs, complex ownership structures, non-resident customers) and Simplified Due Diligence where conditions permit.
- Use digital KYC or CKYCR where available to streamline onboarding; retain certified copies where required and follow additional certification procedures for NRIs/PIOs (notary, embassy, overseas bank officials as allowed).
- Maintain KYC and transaction records in retrievable form for the periods specified in PML Rules; ensure safe storage and restricted access.
- Train staff on AML/CFT obligations, recognition of suspicious behaviour, and the process for escalating and filing Suspicious Transaction Reports (STRs) to FIU-IND.
- Nominate and notify a Designated Director or senior official responsible for AML compliance and ensure periodic board-level oversight.
- If you operate abroad, compare host-country and RBI standards and apply the stricter norms; notify RBI if local laws prevent compliance.
Final note
These Directions are legally binding. Keep your AML/KYC manual updated with subsequent RBI updates and circulars referenced in the Master Direction. When in doubt, consult your compliance officer or seek RBI guidance to ensure your FFMC remains compliant with CDD, record-keeping and reporting duties.