Reserve Bank of India (RBI) Governor Sanjay Malhotra asserted that the measures taken to combat money laundering should not be overzealous, as they could stifle legitimate activities and investments.

While addressing the Private Sector Collaborator Forum 2025 in Mumbai, the RBI Governor said, “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.”

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He bet for a balanced and risk-based approach to Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) regulations to avoid unintended consequences on financial inclusion and economic growth.

Malhotra said that broad and blunt regulatory tools often create unnecessary compliance burdens on financial institutions and businesses, inadvertently affecting honest entities.

Instead, he advocated for targeted, data-driven regulations that minimise disruption while effectively tackling illicit financial flows.

Pitching for balanced regulations, the RBI Governor said adopting a risk-based approach would be beneficial and added that assessing the impact on people and businesses is essential.

He said stakeholders need to coordinate better and work towards avoiding the unnecessary process of making people repeatedly undergo the know your customer (KYC) requirements.

Speaking about technology, Malhotra said that while it has enabled ease of doing business, it has also led to sophisticated means of money laundering and illicit financing.

“We are determined to strengthen our financial system further to deter and combat illicit financial activities,” he said.

Malhotra spoke on the importance of public-private cooperation in safeguarding the integrity of the financial system. He appreciated the efforts of regulators, financial institutions, and businesses in strengthening India’s AML/CFT framework, which recently earned the country a top ranking in the Financial Action Task Force (FATF) mutual evaluation.

“A risk-based approach is crucial in ensuring financial regulations serve their intended purpose without imposing undue burdens,” he said, urging financial institutions to refine their risk assessment models using AI, blockchain, and machine learning.

He further said that there is a need to harness technology to improve compliance processes. “We must continuously enhance our risk assessment models, data quality, and technological capabilities to minimise false positives and negatives in compliance screenings,” he said.