Strategies for Adhering to KYC/AML Regulations in India, a Leading Fintech Center (2024)
In the rapidly growing fintech sector of India, companies are meticulously navigating complex Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. The Prevention of Money Laundering Act (PMLA) and the Reserve Bank of India (RBI) Master Directions on KYC, updated as recently as June 2025, govern these regulations for fintech startups.
The core of these requirements includes Customer Due Diligence (CDD), Suspicious Transaction Reporting (STR), Record-Keeping, Digital KYC Compliance, Cross-border Transactions, Risk Management, and adherence to the RBI's "Enabling Framework" for regulatory sandbox testing.
CDD involves verifying identity using accepted documents, such as Aadhaar, risk-based customer profiling, and categorization into risk classes. STR mandates reporting suspicious activities within prescribed timelines to the Financial Intelligence Unit – India (FIU-IND). Record-Keeping entails maintaining transaction records for specified durations as mandated by law.
Digital KYC Compliance requires fintechs to abide by RBI guidelines covering digital KYC processes, including data privacy, encryption, multi-factor authentication, and regular security audits. Cross-border Transactions necessitate additional scrutiny under the Foreign Exchange Management Act (FEMA) for international remittances and reporting requirements. Risk Management demands demonstrating clear risk assessment methodologies, ongoing due diligence, and maintaining audit trails as expected by RBI.
For fintechs dealing with gaming or high-value transactions above ₹2,000, Aadhaar-based KYC and stringent suspicious activity reporting is mandatory in 2025, with penalties for non-compliance.
India has been working diligently to minimize money laundering since the introduction of its AML Law in 2002. The RBI has issued a list of KYC norms and policies for financial institutions, including Customer Acceptance Policy, Risk Management, Customer Identification Procedures (CIP), and Monitoring of Transactions. The Securities and Exchange Board of India (SEBI) provides AML and KYC guidelines for financial intermediaries.
The KYC form is a document filed by individuals applying to become customers/investors of financial institutions in India, containing verification data and documents. India permits several types of KYC checks, including the Aadhaar KYC process, which is a paperless method using a unique 12-digit code issued by the Unique Identification Authority of India (UIDAI).
The Central KYC (CKYC) procedure is a once-and-for-all verification method introduced by the Indian government in 2012, allowing people to register all their information to the Central KYC Registry (CKYCR) for use by financial institutions.
The Directorate of Enforcement (ED) is the main regulatory authority in India for investigating and prosecuting money laundering activities. The digital KYC procedure requires a person from the financial institution to be present during the process, making it only partially digital.
Penalties for non-compliance with AML regulations in India, as outlined in the PMLA, include fines ranging from INR 10,000 to 100,000 and imprisonment for committing money laundering offenses. The Financial Intelligence Unit (FIU) operates under the Department of Revenue and receives and analyzes reports from financial institutions on suspected money laundering activity.
As the fintech sector in India continues to expand, with an adoption rate of 87% and more than 2,000 officially recognized startups, companies are required to appoint a designated director and principal officer to ensure compliance with governmental regulations. Companies like Sumsum have launched innovative solutions, such as Non-Doc Verification, allowing instant onboarding of users from India and Brazil without ID documents.
In essence, fintech startups must build robust AML and KYC systems that combine regulatory adherence with technology-enabled customer verification, fraud detection, and data protection, aligned to the latest RBI updates and PMLA mandates.
- Fintech startups in India, while navigating complex Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, must comply with digital KYC processes that prioritize data privacy, encryption, multi-factor authentication, and regular security audits.
- The financial sector of India has been implementing stringent measures since the introduction of its AML Law in 2002, with the Securities and Exchange Board of India (SEBI) providing AML and KYC guidelines for financial intermediaries.
- As the fintech sector continues to grow, companies are required to appoint a designated director and principal officer to ensure compliance with governmental regulations, such as adherence to the RBI's "Enabling Framework" for regulatory sandbox testing.
- Penalties for non-compliance with AML regulations in India include fines and imprisonment, as outlined in the Prevention of Money Laundering Act (PMLA), along with strict reporting requirements to the Financial Intelligence Unit – India (FIU-IND).
- In sports-betting circles, fintech solutions have emerged to ensure general-news-worthy KYC compliance for high-value transactions, addressing the crime-and-justice concerns associated with money laundering activities in the sector.
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