India’s New Rules for Wire Transfers: What Businesses Should Note to Avoid Reputational Risks
India’s central bank, the Reserve Bank of India (RBI), has issued updated guidelines to regulated entities (REs), including banks and financial institutions, to ensure that all wire transfers, both domestic and international, contain complete information about the originator and beneficiary. Businesses operating in India should ensure compliance to avoid legal and reputational risks.
It must be noted that the RBI instructions do not apply to monetary transfers for the purchase of goods and services through credit and debit cards or prepaid payment instruments. This article provides details on the latest regulatory amendment and implications of the updated guidelines for wire transfers in India.
The Reserve Bank of India (RBI) has recently issued updated instructions to all regulated entities (REs), including banks and financial institutions in the country, to ensure that all wire transfers, both domestic and international, contain complete information about the originator and beneficiary. However, the RBI has clarified that these instructions do not apply to transfers to purchase goods or services via credit card, debit card, or prepaid payment instruments (PPI).
The move is aimed at preventing such transfers from being used for money laundering and terrorist financing. India recently announced a slew of measures to tackle money laundering, including the latest amendments to Prevention of Money Laundering Act (PMLA), 2002.
The updated instructions have been included in the Master Direction on Know Your Customer (KYC) and are aligned with the relevant recommendation of the Financial Action Task Force (FATF). Under the new guidelines, all domestic wire transfers, where the originator is an account holder of the ordering RE, must be accompanied by originator and beneficiary information.
Domestic wire transfers of INR 50,000 and above, where the originator is not an account holder of the ordering RE, must also include such information, as is required for cross-border wire transfers.
The RBI has defined ‘Ordering RE’ as the financial institution that initiates the wire transfer and transfers the funds on behalf of the originator.
In addition, RBI has ordered that the full details of the remittance along with the relevant laws should be passed on to the relevant law enforcement authorities and/or prosecutors as well as the Financial Intelligence Unit of India (FIU-IND) upon receipt of the applications.
The RBI’s move is anticipated to bolster India’s endeavors to combat money laundering and align the country with internationally recognized standards in this domain.
It is crucial for businesses operating in India to ensure compliance with the new guidelines to avoid any legal or reputational risks. Contact us at email@example.com to learn more about how we can assist your business in navigating the complex regulatory landscape in India.
FAQs on new rules for wire transfers in India
Who are regulated entities as per the RBI?
Regulated Entities or REs encompass various entities, including Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Local Area Banks (LABs), Primary (Urban) Co-operative Banks (UCBs), State and Central Co-operative Banks (StCBs/CCBs), and any other entity licensed under Section 22 of the Banking Regulation Act, 1949. Together, these groups are known as banks.
Additionally, All India Financial Institutions (AIFIs), Non-Banking Finance Companies (NBFCs), Miscellaneous Non-Banking Companies (MNBCs), and Residuary Non-Banking Companies (RNBCs) are also REs. Payment System Providers (PSPs), System Participants (SPs), PPI Issuers, and authorized persons (APs), including agents of Money Transfer Service Scheme (MTSS) regulated by the regulator, are also considered REs.
What information is required for cross-border wire transfers from India?
According to the updated guidelines by the RBI, all cross-border wire transfers from India must include the following accurate, complete, and meaningful originator and beneficiary information:
- Name of the originator.
- Originator account number, if used to process the transaction. In the absence of an account, a unique transaction reference number should be included which permits traceability of the transaction.
- Originator’s address, national identity number, customer identification number, or date and place of birth.
- Name of the beneficiary.
- Beneficiary account number, if used to process the transaction.
Are batch transfers exempted from providing originator information for individual transfers?
Yes, in case of batch transfer where several individual cross-border wire transfers from a single originator are bundled in a batch file for transmission to beneficiaries, individual transfers are exempted from the requirements of originator information. However, the batch file must contain required and accurate originator information, and full beneficiary information that is fully traceable within the beneficiary country.
Do domestic wire transfers require originator and beneficiary information?
Yes, all domestic wire transfers where the originator is an account holder of the ordering RE must be accompanied by originator and beneficiary information, as indicated for cross-border wire transfers.
Are there any exemptions for domestic wire transfers?
Domestic wire transfers of INR 50,000 and above, where the originator is not an account holder of the ordering RE, shall also be accompanied by originator and beneficiary information as indicated for cross-border wire transfers.
What happens if law enforcement or prosecutorial authorities request wire transfer information?
REs must ensure that all information on the wire transfers is immediately made available to appropriate law enforcement and/or prosecutorial authorities as well as FIU-IND on receiving such requests with appropriate legal provisions.
Are credit card or debit card transactions exempt from these instructions?
Any transfer that flows from a transaction carried out using a credit card/ debit card/ PPI, including through a token or any other similar reference string associated with the card/ PPI, for the purchase of goods or services, is exempted from these instructions as long as the credit or debit card number or PPI identity or reference number accompanies all transfers flowing from the transaction.
Are financial institution-to-financial institution transfers exempt from these wire transfer instructions?
Yes, financial institution-to-financial institution transfers and settlements are exempt from these instructions as both the originator and the beneficiary are regulated financial institutions acting on their own behalf.
Will these instructions impact the reporting requirements under PML Act, 2002, and the Rules made thereunder, or any other statutory requirement in force?
No, these instructions will not impact the obligation of an RE to comply with applicable reporting requirements under PML Act, 2002, and the Rules made thereunder, or any other statutory requirement in force.
What is the responsibility of Ordering RE in wire transfers?
The Ordering RE (financial institution initiating the transfer) must ensure that all cross-border and qualifying domestic wire transfers contain accurate and required originator and beneficiary information.
When should Customer Identification be made by Ordering RE?
Customer Identification should be made if a customer intentionally structures domestic wire transfers below INR 50,000 to avoid reporting or monitoring.
What is the responsibility of Intermediary RE in wire transfers?
The Intermediary RE (financial institution processing an intermediary element of a chain of wire transfers) must retain all originator and beneficiary information accompanying a wire transfer and take reasonable measures to identify cross-border wire transfers that lack required information. They must also have effective risk-based policies and procedures for executing, rejecting, or suspending a wire transfer lacking required information and for reporting to the FIU-IND in case of suspicious transactions.
What is the responsibility of Beneficiary RE in wire transfers?
The Beneficiary RE (financial institution receiving the wire transfer on behalf of the beneficiary) must take reasonable measures to identify cross-border and qualifying domestic wire transfers lacking required information. They must also have effective risk-based policies and procedures for executing, rejecting, or suspending a wire transfer lacking required information and for reporting to the FIU-IND in case of suspicious transactions.
Do MTSS providers need to comply with these instructions?
Yes, MTSS providers must comply with all relevant requirements of these instructions whether they are providing services directly or through their agents. If a transaction is found to be suspicious, they must file an STR with FIU-IND in accordance with the PML Rules.
What are the obligations of REs when engaging with unregulated entities in the wire transfer process?
REs must ensure that complete wire transfer information flows unhindered from and through unregulated entities involved. Agreements with unregulated entities must clearly stipulate wire transfer instructions, and a termination clause should be available if they are unable to support the wire information requirements. Existing agreements should be reviewed within three months to ensure these requirements.
Are REs allowed to process cross-border transactions of designated persons and entities?
No, REs are prohibited from conducting transactions with designated persons and entities. They must ensure compliance with Chapter IX of the Master Direction on KYC, which deals with “Regulations for International Agreements” and not process cross-border transactions of designated persons and entities.
What is the record management requirement for REs in wire transfers?
REs involved in wire transfers must preserve complete originator and beneficiary information in accordance with Section 46 of the Master Direction on KYC, which prescribes various rules and procedure on record management.
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