Reserve Bank of India (RBI) Governor Sanjay Malhotra speaks during the inaugural session of the Financial Action Task Force (FATF) Private Sector Forum 2025, in Mumbai on Wednesday.
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While efforts should be made to make financial systems secure against money laundering and terror financing, policymakers should be mindful that their measures do not stifle legitimate investments and activities, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday.
He was speaking at the Private Sector Collaborative Forum (PSCF) 2025 of the Financial Action Task Force (FATF) which is being held for the first time in the country. “You would appreciate that multiple laws and rules, each with their own level of granularity, cast a high level of burden of compliance on the regulated financial service providers. This is relevant in the context of anti-money laundering (AML) – countering the financing of terrorism (CFT) too,” he told the audience comprising dignitaries from other countries.
“Therefore, we need to have laws and regulations which, with surgical precision, target only the illegitimate and illicit, rather than use them as blunt tools which unintentionally hurt even the honest,” he said.
Mr. Malhotra said while implementing the legal framework and regulations, authorities needed to keep in mind the impact on persons and businesses. “Risk-based approach is recommended in this regard. But let us keep in mind that this is only a step forward in reducing compliance burden,” he emphasised.
“Let us appreciate that it is not the ultimate solution, as any risk-based approach is not perfect; it would have false positives and false negatives. We need to continuously refine and improve our risk assessment models to make them robust,” he stressed. Stating that there was a need to improve the quality of data and harness emerging technologies, he said this would help improve screening of transactions and detection of suspicious activities, thereby reducing “false positives and false negatives.”
“Considering the evolving landscape in the area of money laundering resulting from changing customer behaviour and evolving products and services, we need to continuously augment AML risk assessment framework and make appropriate system enhancements on a regular basis after assessing the impact of ML and other risks,” he said.
He said the focus has to also be on understanding the latest trends and developments in the financial world that could be exploited by criminals and accordingly develop tools and enabling frameworks that would allow entities to detect suspicious transactions and activities early and take pre-emptive action.
“With the adoption of new technological tools and models, I am sure that AML-CFT risk assessments can be further fine-tuned,” he said. “Let us build financial systems that not only thwart the attempts of money laundering, terror financing and proliferation financing, but also support financial inclusion, encourage innovation, and facilitate economic growth,” he concluded.
Published – March 26, 2025 09:13 pm IST
