RBI penalties have increased by 88% in three years; KYC and AML top the list

Over the past three years, penalties imposed by the Reserve Bank of India (RBI) on financial institutions have surged by 88%, with Know Your Customer (KYC) and Anti-Money Laundering (AML) violations being the most common. According to data compiled by Signzy, a fintech firm specialising in regulatory compliance, the RBI collected Rs 78.6 crore in fines over this period, issuing penalties 261 times in 2023 alone.

Urban and rural cooperative banks have the highest KYC and AML violations, incurring penalties of Rs 13.5 crore and Rs 20.13 crore, respectively, from 2021 to January this year. Ankit Ratan, co-founder and CEO of Signzy, notes that smaller organisations, such as cooperative banks and fintechs, often lack adequate risk and compliance teams, facing challenges related to systems, expertise, and bandwidth.

The increase in penalties is also due to stricter and more comprehensive audits by the RBI, particularly targeting fintechs and NBFCs. Unlike traditional banks, fintechs focus on technology-driven solutions and may not have extensive compliance teams or the institutional knowledge that banks possess. This has led to the RBI implementing new regulations to curb certain fintech activities that deviate from industry standards.