The RBI has imposed monetary penalty on Progfin Private Limited as the company failed to put in place a system of periodic review of risk categorisation of accounts, with such periodicity being at least once in six months.
What are the guidelines for risk categorisation?
RBI’s KYC framework requires regulated entities to have a system for periodically reviewing the risk categorisation of accounts, at least once every six months. Generally, customers are classified into:
- High Risk – Customers or accounts presenting significant risk from an AML/KYC perspective and therefore requiring enhanced monitoring and due diligence.
- Low Risk – Customers whose identity, business/activity and transactions present relatively low risk.
- Medium Risk – Customers with a higher level of risk requiring greater monitoring.
What does “periodic review every six months” mean?
Suppose an NBFC classifies a customer as Medium Risk when the account is opened. It cannot simply leave that classification unchanged forever. The entity must have a system to review the customer’s risk classification at least once in six months and determine whether the customer should remain Medium Risk or be moved to Low/High Risk based on the latest information and transaction behaviour.
Penalty on Shri Ram Finance Corporation Private Limited
The RBI has also imposed monetary penalty on Shri Ram Finance Corporation Private Limited as:
- The company failed to take prior written permission of the RBI while appointing a director resulting in change in management, on account of change in more than 30 per cent of its directors, excluding independent directors;
- The company failed to put in place a system to categorize its customers as low, medium and high- risk category; and,
- The company failed to upload KYC records of certain customers onto Central KYC Records Registry within the prescribed timeline.
