RBI Alters Definition of Politically-Exposed Persons in KYC Norms

• 09 Jan 2024

The Reserve Bank of India (RBI) has recently revised the definition of Politically-Exposed Persons (PEPs) in its Know Your Customer (KYC) norms, aiming to facilitate various banking transactions, including loan approvals.

Key Points

• Clarity in Definition: The earlier open-ended definition of PEPs in KYC norms raised concerns, impacting bankers, parliamentarians, and others. The lack of clarity often resulted in difficulties for PEPs in accessing loans or opening bank accounts.
• Revised Definition: The amended KYC master direction now categorizes PEPs as "individuals entrusted with prominent public functions by a foreign country," encompassing heads of states/governments, senior politicians, government or judicial/military officers, executives of state-owned corporations, and key political party officials.
• Inclusion of Public Function: The new rules extend the definition to individuals entrusted with a public function by a foreign country, broadening the scope of PEPs.
• Additional KYC Norms: Bank accounts of PEPs are subject to enhanced KYC norms, requiring special due diligence by senior bank officials.
• Removal of Sub-Clause: The recent changes involve the removal of a sub-clause in the master direction of KYC norms issued in a circular on February 25, 2016.
• Immediate Implementation: The RBI has directed chairpersons and chief executives of lending institutions to implement these changes promptly.
• PMLA Amendment: In a related move, last year, the Centre amended the Prevention of Money Laundering Act (PMLA), introducing more disclosures for non-government organizations by reporting entities.