Key Points
- RBI proposes rules letting banks freeze accounts linked to money mule activity
- Draft follows Supreme Court directive dated 4 August 2026 on standard operating procedure
- Public comments invited until 2 October 2026 before final directions issued
The Reserve Bank of India has proposed new rules that would allow banks to place temporary holds on accounts suspected of being used for cyber-enabled financial fraud and money mule activities, following a Supreme Court directive issued on 4 August 2026.
The draft Reserve Bank of India (Know Your Customer) Amendment Directions, 2026, released on Friday (11 September), outline a standard operating procedure for banks to freeze suspected accounts while investigations are under way. Money mules are individuals who receive stolen funds in their accounts and transfer them elsewhere, often in exchange for a commission, serving as intermediaries that make it harder for law enforcement to trace illicit money.
The proposed amendments update existing instructions on bank account operations and money mule prevention in the KYC Directions, 2025. Banks would gain a framework for placing temporary debit holds on amounts or accounts linked to suspected money mule activity and cyber-enabled fraud.
“For the purpose of public consultation and feedback, a consolidated draft Amendment Directions applicable to all Commercial Banks, including Small Finance Banks, Payments Banks, Regional Rural Banks and Local Area Banks, and Urban Cooperative Banks is being issued,” the RBI stated in its press release.
Scope and compliance
The central bank said final directions will be issued separately for each category of regulated entity after examining the feedback received. This approach allows for tailored compliance requirements based on the size and nature of different banking institutions.
The draft directions define a suspected money mule transaction as any transaction of ₹1,000 or above flagged by a bank’s transaction-monitoring systems, including those using artificial intelligence and machine learning tools, as suspected proceeds of money mule activity or cyber-enabled fraud.
Transactions may be flagged based on indicators such as being unusual or disproportionate to the account holder’s declared profile, or having linkage to an account already reported as fraudulent. The SOP would require banks to place a temporary debit hold immediately upon identifying a suspected transaction and notify the account holder stating the reasons, the process for removal and the concerned officer’s contact details.
The directions specify that notification must be sent immediately through digital mode if a mobile number or email is on record, or by the end of the next business day through physical mode.
Feedback mechanism
The RBI has invited comments from regulated entities, industry stakeholders and members of the public. Responses must be submitted on or before 2 October 2026 through the Connect 2 Regulate section on the RBI website or by email with the subject line “Feedback on Draft Reserve Bank of India (Know Your Customer) Amendment Directions, 2026”.
Industry bodies representing payment service providers and digital lenders are expected to submit detailed responses during the consultation period. Consumer advocacy groups and legal experts may also raise concerns about the proposed framework before it becomes binding regulation.
The amendments would come into effect from 1 April 2027, or on such earlier date as a bank decides to implement the SOP, according to the draft.
By the numbers
Key figures from this story- ₹1,000
- Minimum transaction threshold for money mule flagging
- 2 October 2026
- Deadline for public comments on draft
- 1 April 2027
- Proposed effective date for new rules
The move comes as India has witnessed a sharp increase in cyber-enabled financial fraud, including phishing attacks, fake investment schemes and loan app frauds. Law enforcement agencies have repeatedly flagged the difficulty of recovering stolen funds once they pass through multiple accounts operated by money mules.
Banks currently face challenges in responding to fraud reports, as existing rules do not clearly define when and how they can restrict account access without a court order or law enforcement directive. The proposed SOP aims to fill this gap with a standardised procedure across all banking institutions.
The draft specifies that the SOP will not apply to nodal accounts, pool accounts, escrow accounts or other special-purpose accounts such as dividend and share capital accounts. It also clarifies that the new framework will not modify existing obligations under the Prevention of Money Laundering Act, 2002 or the KYC Directions, 2025.
If it is established that an account was used as a money mule but a suspicious transaction report was not filed by the bank, the institution would be deemed non-compliant with the directions, according to the draft amendments.
Your Questions, Answered
What is a money mule account under the RBI draft directions?
A money mule account is an account used, knowingly or unknowingly, to receive, layer or transfer proceeds of cyber-enabled financial fraud on behalf of another person. The proposed RBI rules allow banks to freeze such accounts while investigations are under way.
When will the RBI KYC amendment directions come into effect?
The draft directions specify that the amendments will come into effect from 1 April 2027, or on such earlier date as a bank decides to implement the standard operating procedure.
What is the threshold for a suspected money mule transaction?
Under the draft directions, a suspected money mule transaction is any transaction of ₹1,000 or above flagged by a bank's transaction-monitoring systems as suspected proceeds of money mule activity or cyber-enabled fraud.
How can stakeholders submit feedback on the RBI draft directions?
Feedback can be submitted through the Connect 2 Regulate section on the RBI website or by email until 2 October 2026. The email subject line should read Feedback on Draft Reserve Bank of India Know Your Customer Amendment Directions 2026.
