Fearing possible involvement of illicit money in dealings by jewellers and bullion dealers, the Reserve Bank of India (RBI) has asked non-banking lenders to treat such entities as "high-risk" customers and be extra cautious while undertaking transactions with them.
The RBI direction to non-banking financial companies (NBFCs) follows a similar guideline announced for the banks in January, wherein they were asked to treat jewellers and bullion dealers as high-risk customers.
The transactions by jewellers and bullion dealers are highly cash intensive in nature and it is feared that they could be used for flow of black money into the banking system.
It is also feared that these entities prefer to do business with NBFCs, as the regulatory framework for non-banking lenders is considered less strict.
Now, NBFCs would also have to conduct a stricter than normal due diligence before opening accounts for such entities and subject their transactions to a strict monitoring process.
In a circular dated March 8, the RBI has said that it was modifying the master circular for KYC (Know Your Customer) norms and anti-money laundering standards/combating of financing of terrorism obligations of NBFCs to classify bullion dealers and jewellers as "high risk customers".
Also Read
Both banks and NBFCs would also need to immediately inform enforcement agencies about any suspicious activities in the accounts of these entities and non-compliance to the guidelines would attract hefty penalties.
"In view of the risks involved in cash intensive businesses, accounts of bullion dealers and jewellers should also be categorised by NBFCs as 'high risk' requiring enhanced due diligence," the RBI circular said.
The central bank also asked NBFCs to subject these high risk accounts to intensified transaction monitoring and take the same into account while identifying suspicious transactions for filing Suspicious Transaction Reports to FIU-IND.
Financial Intelligence Unit – India (FIU-IND) is nodal agency for receiving, processing, analysing and disseminating information relating to suspected financial transactions.
Others being treated as high-risk customers by RBI include nonresident customers, HNIs, trusts, charities, NGOs and organisations receiving donations, companies having close family shareholding or beneficial ownership, politically exposed persons and those with dubious reputation.
On the other hand, salaried people, the government departments and the government-owned companies, regulators and statutory bodies are treated as low-risk customers.
The high-risk accounts need to be subjected to intensified monitoring for issues like background of the customer, sources of funds and high-value transactions.