Hello everyone, 

Welcome to the 82nd edition of The Pattern, a weekly where we dissect the latest rumblings from the world of banking, finance, economy, and technology. Let’s get started.

Banks have no go but to play Big Brother

The Reserve Bank on Tuesday tightened the customer due diligence (CDD) norms by asking banks and regulated entities (REs) to adopt a risk-based approach for periodic updation of KYC. Banks must now find ways to ensure that the information or data collected under CDD is kept up-to-date and relevant, particularly where there is high-risk. 

This obligates banks to strengthen their transaction monitoring capabilities so as to identify activities of ‘Money Mules’ — a system involving gaining illegal access to deposit accounts and laundering the proceeds of crimes via these accounts. This is only a part of India's larger effort to combat and reduce instances of money laundering. 

Consequently, it opens up a substantial market opportunity for Anti-Money Laundering (AML) monitoring softwares. In fact, at FinBox, we have been invested in enabling banks and NBFCs to run periodic KYC checks using a business rules engine rather than integrate additional vendors. This approach could provide a more efficient and self-reliant way for banks and NBFCs to manage their KYC processes.

The message of the week is clear — don’t make light of due diligence

Besides renewed emphasis on CDD, the week saw the regulator slapping penalties on two prominent banks for non-compliance. Failure to conduct due diligence checks of its service provider, violation of contact hours with customers, and negligent attitude towards reporting frauds to the RBI within the prescribed timeline were some of the charges against the banks. What’s becoming increasingly evident is the renewed emphasis on the need for a comprehensive risk and governance framework. And that gaps in governance will not be taken lightly.

Reading list:

1. RBI releases the results of Forward Looking Surveys

2. Digital currency — cash or deposits?

3. Larger banks benefit more from short term rate hikes: Study

4. Solving the $43 billion identity fraud problem with smarter identity decisioning

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter here and follow FinBox on LinkedIn to never miss any updates.  

Cheers,

Mayank

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.