Overzealous Anti-Money Laundering Measures May Stifle Investments: RBI Governor Sanjay Malhotra

Reserve Bank of India Governor Sanjay Malhotra today highlighted that there is a need to be mindful of the measures meant to prevent money laundering should not be overzealous which can stifle investments. He noted that laws and regulations with surgical precision target only the illegitimate and the illicit but are broad and blunt tools to unintentionally hurt even the honest.

"While we continue to keep our financial systems safe from money laundering and terrorist financing, policymakers must ensure that our measures are not overzealous and do not stifle legitimate activities and investments," Malhotra said while speaking at the Private Sector Collaborator Forum 2025 in Mumbai.

"...While making the policy, it's important to have very precise and balanced regulations. It's equally important that while we are implementing them, we keep the impact that they are going to have on the person in mind. Risk-based approach is recommended in this regard,” he added.

Taking the example of digital KYC and video KYC, the Governor further highlighted that India has made huge strides in applying digitalisation for customer onboarding and customer due diligence processes. He said that the Central KYC Records Registry with more than one billion records is another example that has the potential of ushering in a new era of customer onboarding by making it easier and seamless not only for the customers but also for the regulated entities to perform customer identification and due diligence.

Malhotra also pitched for better coordination among the stakeholders to avoid the "unnecessary" process of making people repeatedly undergo the know-your-customer (KYC) requirements.

RBI on Money Laundering

The central bank plays an important role in combating money laundering through its Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) guidelines.

Through its KYC norms, the RBI protects banks from intentional or unintentional money laundering or terrorist financing activities. Banks are also advised to follow certain customer identification procedures for opening of accounts and monitoring transactions of a suspicious nature to report it to the appropriate authority.

Activities like money laundering can destabilise a country's financial sector. It can disrupt the flow of “hot money” from sudden inflows and outflows, potentially leading to banking crises, poor revenue collection, weak governance, damage to the reputation of international financial centers, and even the loss of correspondent banking relationships (CBRs).