Inside This Article
With financial fraud and money laundering risks on the rise, Non-Banking Financial Companies (NBFCs) must strictly comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. The Reserve Bank of India (RBI) and the Financial Intelligence Unit – India (FIU-IND) enforce these compliance measures to ensure financial integrity, prevent fraud, and protect the Indian economy from illicit activities.
Non-compliance can result in hefty penalties, operational restrictions, and reputational damage. In 2024, FIU-IND imposed significant fines on multiple NBFCs, reinforcing the need for robust AML & KYC frameworks.
In this blog, we provide:
✅ A detailed AML & KYC compliance checklist for NBFCs.
✅ RBI & FIU-IND guidelines for AML & KYC adherence.
✅ Consequences of non-compliance and real-world case studies.
✅ Best practices to ensure full compliance and avoid penalties.
Why is AML & KYC Compliance Important for NBFCs?
NBFCs are prime targets for money laundering, financial fraud, and identity theft. They must implement strict AML & KYC measures to:
✔ Prevent financial crimes & detect suspicious transactions.
✔ Ensure customer identity verification & risk profiling.
✔ Comply with RBI & FIU-IND reporting obligations.
✔ Avoid penalties & legal actions for regulatory violations.
✔ Enhance business credibility and build trust with financial institutions.
📢 Example: In October 2024, FIU-IND fined PC Financial Services ₹2,000 crore for violating AML & KYC norms and transferring funds to China without regulatory approval【source】
AML & KYC Compliance Checklist for NBFCs
1️ Customer Due Diligence (CDD) & KYC Compliance
✅ Verify customer identity (KYC) before onboarding.
✅ Obtain PAN, Aadhaar, Passport, Voter ID, or any RBI-approved document for KYC verification.
✅ Conduct Video KYC (V-KYC) for remote onboarding.
✅ Store KYC documents digitally and ensure data security.
✅ Periodically revalidate KYC details for high-risk customers.
✅ Report customers who fail to provide KYC documentation to FIU-IND.
📌 Regulatory Reference: RBI Master Direction – KYC 2023 mandates KYC updates every two years for high-risk customers, eight years for medium-risk, and ten years for low-risk customers.
2️ Enhanced Due Diligence (EDD) for High-Risk Customers
✅ Classify customers into Low, Medium, and High-Risk Categories.
✅ Identify Politically Exposed Persons (PEPs) and conduct strict due diligence.
✅ Perform background checks for customers with multiple loan defaults.
✅ Monitor transactions of individuals from high-risk countries as per FATF guidelines.
✅ Escalate high-risk transactions for manual review before loan approval.
📢 Case Study: In 2023, an NBFC was penalized for granting loans to entities linked to financial fraud without proper EDD verification.
3️ Monitoring & Reporting Suspicious Transactions to FIU-IND
✅ Monitor all transactions exceeding ₹10 lakh.
✅ Identify unusual account behavior or multiple small transactions (structured transactions).
✅ Detect high-value cash transactions with no legitimate business purpose.
✅ Flag accounts where customer identities do not match their financial behavior.
✅ Submit Suspicious Transaction Reports (STRs) to FIU-IND within the prescribed time.
✅ Ensure real-time fraud detection using AI-based monitoring tools.
📌 Regulatory Reference: As per Prevention of Money Laundering Act (PMLA), 2002, NBFCs must report suspicious activities, large cash transactions, and cross-border fund transfers.
4️ Transaction Limits & Cross-Border Monitoring
✅ Report cash transactions over ₹10 lakh to FIU-IND.
✅ Monitor cross-border transactions above ₹5 lakh to prevent illicit fund transfers.
✅ Verify source of funds for large transactions before processing.
✅ Identify unusual transactions in inactive accounts.
✅ Maintain detailed transaction records for 5+ years for regulatory audits.
5️ Compliance with CERSAI & CKYC Norms
✅ Register all secured loans with CERSAI to prevent fraudulent lending.
✅ Upload borrower details to CKYC (Central KYC Registry) within 3 days of loan disbursement.
✅ Maintain a unified KYC record to avoid duplication & fraud risks.
✅ Ensure NBFC compliance with CKYC guidelines for seamless credit history tracking.
📌 Regulatory Reference: CERSAI & CKYC registration is mandatory for NBFCs as per RBI’s KYC Master Direction, 2023.
6️ Internal AML Policy & Compliance Framework
✅ Develop a company-wide AML/KYC policy approved by the Board.
✅ Assign a Principal Compliance Officer responsible for AML reporting.
✅ Implement AI-driven fraud detection systems for real-time monitoring.
✅ Conduct quarterly internal audits to detect compliance gaps.
✅ Train employees on RBI KYC norms, AML rules, and fraud detection techniques.
📢 Tip: Many NBFCs use AI-powered compliance management software to detect fraud & automate reporting.
Consequences of Non-Compliance with AML & KYC Regulations
What happens if an NBFC fails to follow AML & KYC guidelines?
⚠ Regulatory Penalties: RBI imposes fines up to ₹10 Lakh per day for violations.
⚠ License Cancellation: FIU-IND can blacklist or suspend NBFC licenses.
⚠ Reputational Damage: Customers & investors lose trust in non-compliant NBFCs.
⚠ Increased Fraud Risks: Poor compliance makes NBFCs vulnerable to financial crimes.
📢 Recent Example: In January 2025, FIU-IND imposed a ₹9.27 crore fine on Bybit Fintech Ltd. for operating without AML compliance【source】.
How to Stay Fully AML & KYC Compliant?
✅ Register with FIU-IND & submit STRs on time.
✅ Implement AI-based AML transaction monitoring tools.
✅ Conduct regular internal audits & KYC verification.
✅ Monitor high-risk transactions & prevent money laundering.
✅ Train compliance officers & employees on AML guidelines.
📢 Need an expert to handle your NBFC AML & KYC compliance?
📞 Schedule a Compliance Consultation with Our Experts!
🚀 Stay AML Compliant & Protect Your NBFC from Regulatory Risks!
Final Thoughts
With RBI tightening AML & KYC regulations, NBFCs must adopt a proactive compliance approach. A strong AML & KYC framework helps prevent fraud, ensures regulatory compliance, and enhances customer trust.
By following this comprehensive compliance checklist, NBFCs can:
✔ Avoid hefty penalties & license restrictions.
✔ Ensure full compliance with RBI, FIU-IND & PMLA norms.
✔ Build a fraud-free & trusted financial ecosystem.
💬 Need NBFC compliance assistance? Let’s connect!
📞 Call Us: +91 93287 18979 | 🌐 Visit: nbfcadvisory.com
