The Reserve Bank of India (RBI) has invited public comments on the Draft RBI (Know Your Customer) Amendment Directions, 2026 that aims to provide a clear framework and guidelines for how banks need to operate to freeze or hold accounts or money suspected of fraudulent activity.
Know your customer (KYC) is an integral and periodical exercise that financial institutions undertake to update and verify the personal information of clients.
The draft changes are in response to an order by the Supreme Court of India that directed the RBI to adopt and circulate a standard operating procedure (SOP) for when banks place accounts or money under temporary hold due to being linked to money-mule activity and enabling cyber fraud.
The court also directed the RBI to implement delayed transaction safeguards or a lagged credit mechanism and customer protection in electronic banking transactions.
The draft proposes to amend the 2025 KYC directions, covering the operation of bank accounts and money mules. The proposed SOP will be applicable to all banks including commercial, small finance, payments, regional rural, local area and urban co-operative banks.
The SOP provides a uniform, time-bound procedure to impose and remove the temporary debit hold on suspicious accounts, in co-ordination with the authorities.
Under the draft amendments, banks will be required to file a suspicious transaction report (STR) when they identify an account that has been opened and/or is operated by a money mule. The draft’s main objective is to protect and provide safeguards to genuine customers and reduce their inconvenience.
The draft amendments are to be interpreted in conjunction with the Prevention of Money Laundering Act, 2002, the RBI’s KYC directions, and instructions by the finance and home ministries. The proposed implementation of the draft is 1 April 2027, or an earlier date.
