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The number of penalties imposed by the Reserve Bank of India on financial institutions grew 88% in the past three years with Know Your Customer (KYC) and Anti Money Laundering (AML) topping the list of non-compliances.
The central bank collected ₹78.6 crore over the three years after imposing penalties on 261 occasions in 2023 alone, according to RBI reports compiled by Signzy, a fintech firm that manages regulatory compliance for institutions.
The KYC and AML regulations cover how companies should align their resources to uncover potential money laundering in their institutions.
Urban and rural co-operative banks have the most KYC and AML violations, with urban co-op banks paying ₹13.5 crore and rural co-operative banks paying ₹20.13 crore from 2021 to January this year.
“There is a lack of risk and compliance teams in small organisations like co-operative banks and also fintechs and it may not be a problem of expertise alone, it may include problems of systems, expertise and bandwidth,” said Ankit Ratan, Co-founder and CEO of Signzy.
The rise in the number of penalties can also be attributed to the RBI becoming stricter in its auditing, and increasing the scope of it, as the central bank tightened the audits of fintechs and NBFCs.
Fintechs have been technology-driven, and do not mirror banks. Their main goal is solving a problem with technology. These companies may not have big risk and compliance teams and the institutional knowledge of banks.
“Fintechs should be able to take a different view of banking and solve customers’ problems. Many times fintechs have done a few things that are not very RBI-like, which may or may not be the industry practice. Which is why in the last 1-2 years we saw that RBI had to bring regulations and stop the activity,” Ratan said.
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