Latest News

RBI has changed definition of Politically Exposed Persons so that they can get loans from Banks


➡️ Click here to join our Whatsapp Group

The Reserve Bank of India (RBI) has recently modified the definition of Politically-Exposed Persons (PEPs) within its guidelines, aiming to facilitate various banking transactions, including loan applications, for such individuals.

What is Politically-Exposed Person?

In financial regulation, a politically exposed person is one who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence they may hold.

Earlier definition of Politically-Exposed Persons (PEPs)

The alterations have been implemented in the RBI’s Know Your Customer (KYC) norms. The previous definition of PEPs lacked clarity and was open-ended, causing challenges for bankers, parliamentarians, and others. There were concerns about PEPs encountering difficulties in obtaining loans or opening bank accounts.

New definition of Politically-Exposed Persons (PEPs)

In the revised KYC master direction, the central bank now categorizes PEPs as “individuals who are or have been entrusted with prominent public functions by a foreign country.” This includes heads of states/governments, senior politicians, senior government, judicial, or military officers, senior executives of state-owned corporations, and important political party officials. The updated rules also encompass individuals entrusted with a public function by a foreign country.

Bank accounts of of Politically-Exposed Persons (PEPs)

Bank accounts held by PEPs are subject to additional KYC norms under the current provisions, requiring special due diligence by a senior bank official. The recent changes involve the removal of a sub-clause in the master direction of KYC norms, as per a circular issued by the central bank on February 25, 2016. The RBI has directed chairpersons and chief executives of banks and other financial services engaged in lending to implement these changes immediately.

Notably, the Centre had amended the Prevention of Money Laundering Act (PMLA) last year to introduce increased disclosures for non-government organisations by reporting entities.

Leave a Reply

Your email address will not be published. Required fields are marked *