“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.