The Financial Action Task Force (FATF) is expected to wrap up its review of risk management safeguards within Indian financial institutions by June, sources told Moneycontrol.
The global financial crime watchdog, which aims to curb money laundering and terror funding, has conducted its assessment and no significant red flags have been identified, so far, sources said.
The evaluation report is to be presented at FATF’s plenary session in June in Singapore.
FATF rates India as “compliant”, the best of the three ratings which also includes grey and black.
To maintain the rating, the Reserve Bank of India (RBI) as well as the Centre have in the past year intensified scrutiny of fintech companies and their adherence to anti-money laundering regulations.
This development holds significance as the Reserve Bank of India (RBI) as well as the Centre have in the past year, intensified scrutiny of fintech companies and their adherence to anti-money laundering regulations.
"During the review, FATF has scrutinised whether the fintech companies were following the risk categorisation approach of their clients and due diligence measures taken by the companies regarding high-risk clients," one of the sources said.
"Generally, these checks are conducted on traditional banking companies, but now fintech companies have also become a very important part of the ecosystem, and hence FATF is paying special attention to them."
Fintech companies are expected to continuously conduct risk-based checks, particularly focusing on suspicious transactions such as sudden high-value transfers in line with FATF guidelines.
The guidelines stipulate that banks and financial institutions implement systems to classify clients into low-risk and high-risk categories.
Those in the high-risk category face enhanced due diligence, including the submission and verification of additional KYC documents.
"There haven’t been any major red flags in the review, so far, and India has strong systems and vigilant regulators to detect any misuse of banking channels," the source added.
The RBI's actions against Paytm Payments Bank in January served as a deterrent for many fintech companies, prompting them to enhance their compliance practices, the sources said.
"Post the RBI action, fintech companies have become more vigilant and closed many gaps in their compliance," another source said.
"Rules of bookkeeping in PMLA (Prevention of Money Laundering Act) clearly place liability on the platforms; post-Paytm saga, the companies have realised the cost of non-compliance is very high."
The RBI in January asked Paytm to wind down its payments bank following a “series of violations” including those of KYC norms.
An inter-governmental agency, FATF evaluates each member once every 10 years.
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