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Broad-based Amendments to Maintenance of Records Rules under PMLA

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The Ministry of Finance has introduced changes to the PML (Maintenance of Records) Rules, 2005 through a gazette notification issued by the Department of Revenue under the Ministry of Finance, Government of India.

The key modifications to the Rules are as follows:

1. The definition of “client due diligence” has been broadened to allow the use of “reliable and independent sources of identification” as a means of conducting due diligence on clients.

2. A new compliance requirement has been introduced for reporting entities that are part of a group. Such entities are now mandated to implement group-wide initiatives aimed at preventing money laundering and terror financing. This includes establishing group-wide policies for sharing information necessary for client due diligence and managing risks associated with money laundering and terror financing.

3. The period for a principal officer to report suspicious transactions to the Director (as appointed under the PMLA) has been reduced from 7 days to an “immediate” time frame. Additionally, the maintenance of records and the provision of information to the Director must be kept confidential.

4. The process and requirements for conducting Client Due Diligence have been streamlined. Reporting entities are now obligated to use reliable and independent sources for client identification, gather information regarding the purpose and nature of the business relationship, and take reasonable steps to understand the customer’s business, ownership, and control.

While these amendments bolster the due diligence processes for reporting entities, certain questions remain unanswered. The definition of a “Group” is not provided in the Rules or the PMLA, leaving ambiguity. Additionally, the Rules do not clarify what qualifies as “using reliable and independent sources of identification” for client due diligence. This raises questions about whether hearsay information or data obtained through private or in-house investigations can be included. Only time will reveal how these rules will be interpreted and put into practice.

For a copy of the gazette notification containing the amended Rules, please refer to the attachment below.

We encourage readers to share their perspectives with Regstreet Law Advisors at info@regstreetlaw.com.

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