RBI Issues Revised Master Directions on Fraud Risk Management for Regulated Entities

The Reserve Bank of India (RBI) has taken a significant step towards enhancing fraud risk management in regulated entities (REs) by issuing three revised master directions. These directions apply to commercial banks, cooperative banks, non-banking finance companies, and other financial institutions.

The new guidelines emphasize the importance of compliance with the principles of natural justice in a time-bound manner before classifying individuals or entities as fraud. This move aims to ensure fairness and transparency in the process of identifying and reporting fraud cases.

In addition to promoting good governance practices, the revised master directions also focus on strengthening internal audit and control frameworks within REs. By implementing Early Warning Signals (EWS) and Red Flagging of Accounts (RFA), financial institutions will be able to detect and report frauds at an early stage, thereby minimizing financial damage.

Ashwani Kumar, MD and CEO of UCO Bank, highlighted the importance of transaction monitoring and integrating various segments under one roof to enhance fraud detection mechanisms. The collaboration with call centers and the integration of mule accounts will further streamline the process of identifying and reporting fraud cases.

Ankit Ratan, co-founder and CEO of Signzy, praised the new regulations for emphasizing the reporting of fraud and promoting the adoption of best-in-class governance practices. He also emphasized the potential for creating a central fraud repository in the future, in addition to credit bureaus.

Overall, the RBI’s revised circular on fraud risk management is a positive step towards enhancing governance and due diligence in the financial sector. By leveraging technology and data analytics, REs will be better equipped to detect and prevent frauds, ultimately fostering digital trust within the financial ecosystem.