Reserve Bank of India could ban outsourcing KYC compliance
MUMBAI, INDIA — The Reserve Bank of India (RBI) is considering prohibiting banks and regulated entities from outsourcing know-your-customer (KYC) compliance verification.
According to a recent draft circular, RBI explained that the move aims to keep core functions like policymaking, compliance determinations, and credit decisions with regulated entities.
The draft states entities should not outsource key functions, including KYC compliance, investments, audits, and credit approvals. They should make independent lending decisions.
It proposes norms for recovery agents, barring contact with borrowers outside prescribed hours or intimidation tactics. Proper agent training is emphasized.
The RBI also requires a comprehensive board-approved policy covering selection criteria, parameters, monitoring, and exit strategies for entities outsourcing financial activities.
Moreover, the reserve bank insists that boards and management must manage outsourcing risks through governance and frameworks assessing risks.
Key risks are compliance, concentration, contractual, and country risks. The moves target enhanced oversight and governance of India’s banking sector.
The potential ban indicates tighter control over core compliance and data security amid rising digital transactions.
