RBI NORMS FOR POLITICALLY EXPOSED PERSONS
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Context: The RBI's KYC updates regarding politically exposed persons (PEPs) aim to enhance due diligence measures and risk management for regulated entities, aligning with global anti-money laundering standards set by the Financial Action Task Force (FATF).
- The Reserve Bank of India (RBI) has introduced updates to the Know Your Customer (KYC) norms specifically addressing politically exposed persons (PEPs) in transactions with regulated entities (REs). This move aligns with the recommendations of the Financial Action Task Force (FATF), an intergovernmental organization working to combat money laundering and terrorist financing.
Key points regarding the updated KYC norms for PEPs:
- PEPs are individuals entrusted with prominent public functions by a foreign country. This includes heads of state/governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations, and important political party officials.
- The RBI's update is aimed at providing more clarity for regulated entities to conduct Customer Due Diligence when dealing with PEPs.
- REs have the option to establish a relationship with PEPs, whether as a customer or beneficial owner. However, they must perform regular customer due diligence and adhere to additional conditions specified by the RBI.
- REs are required to establish an appropriate risk management system to determine whether the customer or beneficial owner is PEP.
- REs must take reasonable measures to establish the source of funds/wealth of PEPs.
- Opening an account for PEP requires approval from senior management, adding an extra layer of scrutiny.
- The move to define PEPs in compliance with FATF recommendations addresses potential regulatory gaps and enhances anti-money laundering and counter-terrorism financing measures. FATF considers PEPs to be individuals at risk of being involved in money laundering or other illicit activities due to the nature of their positions. The additional measures prescribed for business relationships with PEPs are preventive in nature, aiming to mitigate associated risks without assuming criminal activity on the part of all PEPs.
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