• UGI USER
  • Jun 06, 2024
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“RBI PENALTIES SURGE 88%, KYC AND AML VIOLATIONS DOMINATE”

Why in the news?

  • The Reserve Bank of India (RBI) has increased penalties by 88% in the past three years, focusing on Know Your Customer (KYC) and Anti-Money Laundering (AML) violations.
  • Urban and rural co-operative banks are the most frequent violators, paying substantial fines for non-compliance.
source:investopedia

About Reserve Bank of India:

  • Role: RBI is India’s central bank, responsible for monetary policy, regulation of banks, currency issuance, and financial system development.
  • Establishment: Founded in 1935 under the Reserve Bank of India Act, 1934.
  • Headquarters: Located in Mumbai, Maharashtra.
  • Governance: Governed by a central board of directors appointed by the Government of India.
About Know Your Customer (KYC):

  • KYC is a comprehensive process, financial and non-financial institutions use to verify the authenticity and identity of their customers.
  • Requirement: Mandatory for every customer before investing in instruments or starting a bank account.
  • Current System in India: Separate KYCs needed for different financial products (e.g., bank accounts, mutual funds, life insurance, retirement savings).
  • Expert Committee: Government of India has formed an expert committee headed by Finance Secretary T V Somanathan to make recommendations for uniform KYC norms.

About Prevention of Money Laundering Act, 2002 (PMLA):

  • Core legal framework in India to combat money laundering.
  • Applicable to financial institutions, banks (including RBI), mutual funds, insurance companies, and their intermediaries.

PMLA (Amendment) Act, 2012:

  • Introduces the concept of ‘reporting entity’ covering banking companies, financial institutions, intermediaries, etc.
  • Removes the upper limit on fines, previously capped at Rs 5 lakh.

Associated Article:

https://universalinstitutions.com/t-n-govt-asks-sc-if-ed-has-power-to-probe-any-offence-in-the-country/