Regulatory enforcement in India has entered a more assertive phase. The Reserve Bank of India (RBI) recently imposed 353 penalties totalling ₹54.78 crore. This follows an 88% increase in enforcement actions between 2021 and 2024, much of it tied to gaps in anti-money laundering (AML) and Know Your Customer (KYC) compliance, alongside other regulatory lapses. 

These penalties are part of a broader pattern, with operational restrictions, reputational fallout, and evolving supervisory expectations now reshaping how banks approach compliance. Rather than a temporary uptick in enforcement, it reflects a shift towards deeper scrutiny, clearer penalty frameworks, and lasting changes in how AML compliance is structured and supervised in India.

Punitive Enforcement as a Deterrent 

The RBI’s more assertive approach reflects a deeper focus on the practical execution of AML controls, as demonstrated in recent enforcement actions.

RBI’s evolving enforcement posture

The RBI is sharpening its enforcement stance to close gaps between policy and practice, particularly in AML compliance. As India’s central banking authority, it ensures that regulated entities meet their obligations under the  Prevention of Money Laundering Act (PMLA), including customer due diligence, ongoing monitoring, and suspicious transaction reporting, through instruments like the KYC Master Direction.

Recent enforcement actions have centred on AML shortcomings: weak transaction monitoring, inadequate suspicious activity reporting, failures to keep KYC data current or properly risk-categorise customers. Penalties increasingly stem from the disconnect between documented policies and how they’re applied in practice. This focus on effectiveness aligns with global principles, such as those outlined by the Wolfsberg Group, which advocate for AML programmes that deliver meaningful results and focus on crystallised risk rather than relying on a check-box approach.

In line with this, the Financial Action Task Force (FATF), which sets global standards for AML and countering the financing of terrorism, has called for supervisory responses that go beyond education, advocating for penalties that are proportionate and dissuasive.

From fines to operational fallout 

For many financial institutions, regulatory penalties have traditionally been viewed as a routine cost of doing business. But as RBI enforcement moves beyond regulatory penalties to include operational restrictions that affect day-to-day functioning and trigger reputational damage, the consequences become harder to absorb. 

A recent high-profile example is Paytm Payments Bank (Paytm), a former licensed payments bank. In 2024, the RBI barred the bank from accepting fresh deposits, facilitating credit transactions, and allowing top-ups, citing “persistent non-compliances and material supervisory concerns.” This came just months after the regulator fined the bank for breaches of its KYC Direction and other compliance rules, following scrutiny of its KYC and AML controls. The result was operational disruption, reputational damage, and a sharp fall in the share price of Paytm’s parent company. 

RBI Regulatory Compliance is Being Rewritten 

Regulatory change in India is moving toward consolidation, clarity, and a framework built for long-term adaptability.

Consolidating rules for simplicity 

The RBI is launching a major regulatory simplification initiative. It will streamline its compliance rulebook by consolidating more than 8,000 existing regulations, circulars, and notifications into approximately 3,000 retained rules, reorganised into 33 thematic subjects. The goal is to simplify compliance and enhance clarity, particularly for banks navigating years of layered circulars, guidance notes, and ad hoc amendments. The goal is to simplify compliance and enhance clarity, replacing a patchwork of overlapping circulars with consolidated, sector-wide guidance.

By grouping related obligations into thematic categories, the RBI aims to reduce duplication and make compliance expectations easier to navigate. A similar consolidated framework for non-bank financial companies (NBFCs) is planned, further extending this harmonisation across the sector.

To sustain these reforms, the RBI is establishing a Regulatory Review Cell. By establishing a cycle of review and revision every five to seven years, the RBI is building a framework designed to remain current, coherent, and enforceable. An independent Advisory Group on Regulation (AGR) will play a key role by embedding industry feedback directly into the Regulatory Review Cell’s periodic review process

Toward principle-based, outcomes-driven supervision

For AML obligations in particular, a consolidated framework can make requirements clearer by bringing them into one coherent structure. This supports India’s alignment with international AML/CFT standards and signals a shift toward principle-based regulation, one that requires greater emphasis on judgment and governance frameworks rather than on checklists. While this approach offers greater flexibility, it can also lead to the loss of some nuances that detailed rules once captured.

This shift reinforces the risk-based approach long advocated by the FATF, one that expects firms to tailor controls to the level of risk they face, while also demonstrating that those controls are effective in practice. Under this model, higher-risk relationships or products receive more scrutiny, while lower-risk ones are managed more efficiently.

Strengthening Compliance Capabilities Through Technology

As compliance expectations evolve, firms are investing in systems that support faster action and stronger internal controls. 

Moving from reactive to proactive compliance

With RBI tightening expectations, remediations after inspections are no longer enough. Proactive compliance means anticipating requirements, embedding them into business processes, and treating AML and KYC obligations as ongoing responsibilities rather than one-off exercises. 

Firms that take this approach reduce the risk of operational disruption and build trust with regulators, partners, and customers. They are also better positioned as RBI introduces periodic rulebook revisions, as programmes designed to be proactive are more resilient than those assembled under pressure.

Technology as an enabler of compliance

Meeting the RBI’s higher expectations requires systems that can scale, respond quickly to change, and support consistent execution. Manual reviews and siloed processes slow detection and increase the risk of error or exposure. 

Technology strengthens bank regulatory compliance by enabling timely sanctions screening and transaction monitoring. For example, automated screening against RBI and global sanctions lists helps firms promptly flag newly designated individuals or entities and remove delisted ones. Transaction monitoring tools enhance the detection of layering or structuring, which can be indicative of money laundering or mule activity. 

Unified data management improves auditability, ensures AML workflows are consistent across business units and enables faster, more consistent responses to regulator requests. For firms, this kind of embedded infrastructure is no longer optional, it’s becoming essential to meet RBI compliance requirements and align with global AML standards.

How Facctum Supports AML Compliance Under RBI’s Evolving Standards

As the RBI consolidates and strengthens its rulebook, firms need systems that go beyond check-box exercises to demonstrate effectiveness. Facctum supports this shift with automated screening, real-time monitoring, and configurable workflows that strengthen oversight and reduce manual effort, while maintaining auditability.

Our platform supports key AML requirements in an end-to-end screening workflow, helping financial institutions manage regulatory risk with greater speed, consistency, and control.

In an environment where tightening supervision and shifting expectations are reshaping AML compliance in India, point-in-time checks are no longer enough. Facctum equips compliance teams to act ahead of enforcement, helping them minimise operational risk, maintain regulator confidence, and adapt more effectively to future rule changes.

Contact us to learn how Facctum can help you stay ahead of RBI’s evolving expectations.