[2025 Guide] AML Regulations India: Laws, Regulators, and More

Every business that deals with money eventually builds some form of control. Sometimes it’s just basic KYC. Sometimes, it’s a detailed risk engine tied to dozens of checks. 

Either way, the idea is the same: you want to know who’s transacting, why they’re doing it, and whether the money being moved should raise concern. 

That’s the essence of AML in India.

If there’s financial value being handled, 

AML compliance becomes part of the operations.

But here’s where it gets overlooked. Many businesses don’t struggle because the rules are unclear. They struggle because the guidance they follow is either too high-level to act on or too fragmented to implement properly.

Today, we’re going to make sense of it all: what laws apply, who the regulators are, what practical steps matter, and where technology can reduce friction without compromising risk coverage. So, without further ado, let’s dive in.

AML in India, Quick Overview

Anti-Money Laundering (AML) regulations in India don’t sit under a single document. It’s a tight mesh of laws, rules, circulars, and regulatory instructions. At the center of it sits the Prevention of Money Laundering Act, 2002. This is what gives the legal backing. But that’s just one piece.

In practice, compliance plays out across multiple fronts. There are the PMLA Rules from 2005. Then there are sector-specific directions as well. Six key regulatory bodies oversee this all:

1. Reserve Bank of India: Regulates banks, non-banking financial companies (NBFCs), and payment system operators
2. Securities and Exchange Board of India: Regulates stockbrokers, mutual funds, portfolio managers, and investment advisers
3. Insurance Regulatory and Development Authority of India: Regulates life insurance, general insurance, and health insurance providers
4. Financial Intelligence Unit – India: Receives reports from all reporting entities across sectors and analyzes suspicious transaction patterns
5. Enforcement Directorate: investigates and prosecutes individuals and entities involved in money laundering under PMLA
6. Ministry of Finance: notifies and brings under compliance real estate agents, dealers in precious metals and stones, professionals like chartered accountants, company secretaries, cost accountants, and virtual digital asset service providers

Each of these bodies promotes its own version of AML guidelines depending on who it regulates. So, a payment app doesn’t face the same expectations as a stockbroker or insurance firm.

Now that we have a working knowledge of AML regulations and who needs to follow them, let’s go through some of the most important regulations. 

AML Laws in India

To comply with the AML regulations India has enforced, it’s not enough to follow just one law. Businesses have to track the full set, from what the PMLA defines to how reporting should be done to what the latest circular means for their category.

We are going to cover 6 areas below which covers the nice range of information for “reporting entities” regarding the laws they need to comply with at minimum.

1. Prevention of Money Laundering Act, 2002 (PMLA)

This is the spine. Everything else leans on this. The PMLA defines what counts as money laundering, what qualifies as proceeds of crime, and what the penalties are. It gives powers to authorities like the Enforcement Directorate to investigate and prosecute offenses.

The Act also lays out responsibilities for businesses. These include record keeping, reporting of suspicious transactions, and verifying clients through KYC processes.

Over the years, the law has been amended to widen its scope. Today, even tax evasion linked to foreign assets or cross-border transactions can fall under its net.

2. PMLA (Maintenance of Records) Rules, 2005

This is where the operational side comes in. The Rules break down the “how”: how to maintain records, how long to keep them, and what exactly needs to be reported to the FIU.

They also define terms like “beneficial owner”, “politically exposed person”, and explain how enhanced due diligence should be done in higher-risk cases. These rules are updated regularly. For instance, recent changes brought virtual asset providers and specific professionals into the fold.

3. RBI Guidelines on AML and KYC

For entities under RBI (i.e., banks, NBFCs, payment companies) the AML checklist is stricter. RBI has issued detailed Master Directions that cover everything from risk grading of customers to periodic review of accounts.

These guidelines are not suggestions. They’re binding. Any gap in adherence can trigger audits, monetary penalties, or even suspension of operations.

4. SEBI Guidelines for Capital Market Intermediaries

Stockbrokers, mutual fund houses, portfolio managers: all these players answer to SEBI. SEBI’s AML framework is structured around client onboarding, transaction monitoring, and risk-based due diligence.

There are clear formats for suspicious transaction reports. There’s also a strong push towards automation of alerts and red-flag detection.

5. IRDAI Guidelines for Insurance Entities

Insurers have a different customer flow and product structure. IRDAI has crafted its AML instructions to reflect that. From verifying the source of premium payments to tracking policy transfers, insurers need to watch for patterns that might be used to clean up money.

In case of a flagged transaction, they are expected to alert the FIU just like any other financial intermediary.

6. Sector-Specific Circulars and Notifications

Apart from the main regulators, the Ministry of Finance has also issued notifications for niche sectors. These include guidelines for:

• Real estate agents
• Dealers in precious metals and stones
• Professionals like CAs, CS, and Cost Accountants
• Virtual digital asset platforms

Each comes with its own list of expectations. The language is clear. If you handle money, you need to know your customer. And you need to report what doesn’t look right.

Steps to Comply with AML Setups

Not every business follows the same compliance path. A stockbroker’s AML setup will look different from a payment gateway’s. A jeweller will follow a different set of instructions than an NBFC. 

The AML regulations laid out in India are shaped by the type of entity, the kind of transactions handled, and the level of risk exposure.

That said, there are certain steps that cut across categories. The broad strokes every regulated business is expected to follow. Here’s a high-level view. 

Use this as a base, and adapt it to fit the exact guidelines that apply to your sector.

Step 1: Risk-Based Customer Due Diligence

The first layer is knowing your customer, not just identity, but intent and behavior too. Businesses are expected to classify customers based on risk levels. A salaried account holder with basic transactions will fall into low risk. A foreign entity wiring funds regularly might be marked as high risk.

Depending on the level, due diligence requirements change. The higher the risk, the deeper the scrutiny.

Step 2: Establish an Internal AML Policy

Prepare an AML policy that should clearly define internal responsibilities, reporting chains, how suspicious activity is flagged, and what kind of monitoring is expected.

The policy should also include procedures for staff training, escalation paths, and periodic reviews. Most regulators now expect this policy to be formally approved by the board.

Step 3: Set Up a Monitoring and Reporting System

Every regulated entity must have a system in place to detect unusual transactions. This could be manual tracking in smaller setups, or an automated rule-based system for higher-volume players.

Once detected, suspicious transactions need to be reported to the FIU using prescribed formats like STRs (Suspicious Transaction Reports) or CTRs (Cash Transaction Reports).

Step 4: Maintain Proper Records

Regulations require businesses to store key customer and transaction records for at least five years after the relationship ends or the transaction is complete, whichever is later.

These records must be clear, retrievable, and structured in a way that allows quick access if requested by the regulator.

Step 5: Ongoing Training and Audits

AML setups are not a one-time effort. Staff handling onboarding, finance, and customer service should receive periodic training on AML red flags and compliance workflows.

Many sectors also require internal audits of AML systems. These checks help plug process gaps and show regulators that the business takes India’s AML obligations seriously.

Scaling AML Compliance Operations With Technology

Manual checks don’t scale. And in AML, delays are dangerous. 

With regulatory pressure increasing and fraud techniques getting sharper, relying only on paperwork or spreadsheets isn’t enough. 

That’s where API-first tools help. With the right integrations, businesses can automate their AML processes without breaking existing systems. Here are three solutions often used to tighten AML workflows:

• PAN Verification API: Instantly verifies customer PAN details with official government databases, helping eliminate false entries and reduce onboarding fraud.
• Face Match + Liveness Check APIs: Verifies if the person behind the screen is real and matches the submitted ID, reducing the risk of impersonation or mule accounts.
• Bank Account Verification API: Confirms if a bank account exists, is active, and belongs to the intended user. Useful for payout businesses, fintechs, and NBFCs.

Whether you’re onboarding customers, verifying identities, or monitoring fraud, Signzy APIs are designed to make compliance smoother and faster.

Want to see how this fits your setup? Book a free demo.

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