Reporting entity
Also written RE under PMLA
Under Section 2(1)(wa) of the PMLA, a banking company, financial institution, intermediary or person carrying on a designated business or profession — the entity that must keep records and report to FIU-IND.
In plain language
The PMLA does not impose its record-keeping and reporting duties on everybody. It imposes them on a defined class, and Section 2(1)(wa) draws the line: a banking company, a financial institution, an intermediary, or a person carrying on a designated business or profession.
If you are inside that definition, Chapter IV of the Act applies to you: verify who your clients are, keep the records, and tell FIU-IND about the transactions the Rules specify. If you are outside it, none of it applies.
Most of the enforcement in this paper is simply the consequence of an entity being inside the definition and behaving as though it were not.
How it works
Section 12 of the PMLA states the core obligations. Every reporting entity shall maintain a record of all transactions in such manner as to enable it to reconstruct individual transactions; furnish prescribed information to the Director, FIU-IND; and maintain records of the documents evidencing the identity of its clients and beneficial owners, together with account files and business correspondence.
The two retention clocks are different and are examined as a pair:
- Transaction records: five years from the date of the transaction.
- Client identity records: five years after the business relationship has ended or the account has been closed, whichever is later.
Everything maintained, furnished or verified is to be kept confidential, and the Central Government may exempt a reporting entity or a class of them from any obligation under the Chapter.
Under Rule 7 the entity must communicate the name, designation and address of its Designated Director and Principal Officer to the Director, FIU-IND, and register itself with FIU-IND to file at all. For a unit licensed by IFSCA that registration runs through the FINGate 2.0 portal, and non-registration is itself treated as non-compliance with the IFSCA Guidelines.
A worked example
Bybit Fintech Limited, a Virtual Digital Asset Service Provider, is a reporting entity under Section 2(1)(wa) — VDA SPs having been brought in by notification, with FIU-IND's AML/CFT guidelines for VDA service providers issued on 10 March 2023 and a registration circular on 17 October 2023.
Bybit kept expanding its services in the Indian market without securing the mandatory registration with FIU-IND. The non-compliance was persistent enough that FIU-IND had its websites blocked, through MeitY, under the Information Technology Act, 2000.
By order dated 31 January 2025, exercising powers under Section 13 of the PMLA, the Director FIU-IND found Bybit in violation of Section 12(1) read with Rules 2(1)(h), 3(1)(D), 7(2), 7(3), 8(2) and 8(4) of the PML Rules, and imposed a penalty of Rs 9,27,00,000 — nine crore twenty-seven lakh rupees.
Compare Paytm Payments Bank Ltd, which was registered as a reporting entity and still paid Rs 5,49,00,000 by order dated 15 March 2024, for failing to detect and report suspicious transactions on its Payout service, failing ongoing due diligence under Rule 9(12), relying on a non-compliant third party for KYC under Rules 9(2)(c) and 9(2)(f), and failing to file STRs for 34 beneficiary accounts.
One was fined for never registering; one for registering and then not doing the work.
Why NISM asks about it
Chapter 2 sets out Section 2(1)(wa) and Section 12; Chapter 7's sample question asks directly what a VDA SP is classified as under the PMLA, and the answer is Reporting Entity — with "Regulated Entity" sitting right beneath it as the distractor. Expect the five-year retention pair as a computation-style question, and the case penalties as recall.
Common exam traps
- Reporting entity (PMLA) is not Regulated Entity (IFSCA Guidelines). The Chapter 7 sample question is built on exactly this confusion.
- The two five-year clocks run from different events. Transactions: from the date of the transaction. Identity records: from the end of the relationship or account closure, whichever is later.
- Under the IFSCA Guidelines the record-keeping period is at least six years, not five — the Guidelines are stricter than the Act, and both numbers are examinable.
- A person carrying on a designated business or profession is a reporting entity too — casinos, notified real estate agents, dealers in precious metals and stones, and anyone the Central Government designates by notification.
- Registration is an obligation in itself. Bybit was penalised for never registering, not merely for failing to report.
- Beneficial owner records are expressly part of Section 12(1)(c); keeping only the client's own documents is not compliance.
Check yourself
1.For how long must a reporting entity maintain records of documents evidencing the identity of its clients under section 12 of the PMLA?
- a)Five years after the business relationship has ended or the account has been closed, whichever is later
- b)Five years from the date of the transaction
- c)Three years from account opening
- d)Permanently
Show the answer
Answer: (a) Five years after the business relationship has ended or the account has been closed, whichever is later
The records referred to in clause (c) of sub-section (1) shall be maintained for a period of five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later.
Clause (c) is the identity limb: maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
Option B states the transaction rule, which is the other retention period: the records referred to in clause (a) of sub-section (1) shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.
Both periods are five years — but they run from different events. Transaction records from the transaction; identity records from the end of the relationship or closure of the account, whichever is later.
Note the "whichever is later" — where a relationship ends before the account is formally closed, or the reverse, the clock starts from the later of the two.
The other two obligations under section 12(1):
(a) maintain a record of all transactions, in such manner as to enable it to reconstruct individual transactions
(b) furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed
"Whether attempted or executed" — an abandoned transaction is still reportable.
Confidentiality applies throughout: every information maintained, furnished or verified, save as otherwise provided under any law for the time being in force, shall be kept confidential.
And exemption is possible: the Central Government may, by notification, exempt any reporting entity or class of reporting entities from any obligation under this Chapter — the statutory basis for IFSCA's own exemptions, under which exempted institutions... are still required to conduct formal risk assessment and maintain relevant records and safeguards.
2.Who must be designated as the Designated Director where the reporting entity is located in an International Financial Services Centre?
- a)A person who is heading the reporting entity in India
- b)The Managing Director of the overseas parent
- c)The Principal Officer
- d)Any employee at management level
Show the answer
Answer: (a) A person who is heading the reporting entity in India
A person who is heading the reporting entity in India, if the reporting entity is located in an International Financial Services Centre — clause (vi) of the definition, and the clause this examination is built around.
The other limbs apply by legal form: the Managing Director or a whole-time Director if the reporting entity is a company; the managing partner if the reporting entity is a partnership firm; the proprietor if the reporting entity is a proprietorship concern; the managing trustee if the reporting entity is a trust; a person or individual who controls and manages the affairs of the reporting entity if the reporting entity is an unincorporated association or a body of individuals; and residually such other person or class of persons as may be notified by the Government.
Option B looks to the wrong place. The clause speaks of the person heading the reporting entity in India, not an officer of a foreign parent.
Option C confuses the two officers. The Designated Director is a person designated by the reporting entity to ensure overall compliance with the obligations imposed under chapter IV of the PMLA Act and the Rules, whereas the Principal Officer... would act as a central reference point in facilitating onward reporting of suspicious transactions.
Responsibility versus reporting.
Option D describes the Principal Officer's qualification, who should be an officer at the management level — a standard that does not govern the Designated Director, whose identity is fixed by the entity's form.
One IFSC constraint narrows the list further: in IFSCA the permitted legal forms are company/partnership firms/body corporates; proprietory concerns are not allowed — so clause (iii) can never operate there.
The company-law terms are borrowed: the terms "Managing Director" and "Whole-time Director" shall have the meaning assigned to them in the Companies Act, 2013.
Both officers must be registered with FIU-IND. Rule 7 of the PML Rules requires every reporting entity to communicate the name, designation and address of the Principal Officer to the Director, FIU-IND, and Chapter 1's FINGate second step is Designated Director and Principal Officer registration.
3.Which of the following categories of persons are designated as reporting entities under the PMLA and PML Rules?
- a)Banking companies, financial institutions, intermediaries, and persons carrying on designated businesses
- b)Only stock exchanges and depositories
- c)Only insurers and pension fund regulators
- d)Government departments and public sector undertakings only
Show the answer
Answer: (a) Banking companies, financial institutions, intermediaries, and persons carrying on designated businesses
"Reporting entity" means a banking company, financial institution, intermediary or a person carrying on a designated business or profession.
Four categories, gathered into one defined term.
And the Act imposes duties on exactly those: the PMLA and rules notified thereunder impose obligation on banking companies, financial institutions, and intermediaries and persons carrying on a designated business or profession, to verify identity of clients, maintain records and furnish information to FIU-IND.
Three duties — verify, maintain, furnish.
Option B is far too narrow. A recognised stock exchange is only one item within the definition of intermediary, which also covers a stock-broker, sub-broker share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser or any other intermediary associated with securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992, plus a Forward Contracts association or its member and an intermediary registered by the Pension Fund Regulatory and Development Authority.
Option C confuses regulated entities with regulators. A pension fund regulator is not a reporting entity; intermediaries it registers are.
Option D is wrong on its face — the definition is built around private financial businesses.
Financial institution is itself broad: as defined in clause (c) of section 45-I of the Reserve Bank of India Act, 1934, and includes a chit fund company, a housing finance institution, an authorised person, a payment system operator, a nonbanking financial company and the Department of Posts in the Government of India.
And persons carrying on designated business or profession covers casinos, the Inspector-General of Registration, real estate agent, dealer in precious metals, precious stones and other high value goods, safekeepers of cash and liquid securities, and an open category — person carrying on such other activities as the Central Government may, by notification, so designate, from time-to time.
Where this is taught
Free preparation for NISM Series IFSCA-01Related terms
- Principal officerThe named individual at a non-individual intermediary who carries personal regulatory responsibility for the advisory business, and who must personally hold the prescribed qualification and NISM certification.
- Designated DirectorThe person a reporting entity designates to ensure overall compliance with Chapter IV of the PMLA — and, where the entity is located in an IFSC, the person heading that entity in India.
- FINGate 2.0FINNET 2.0's front-end web portal, the primary platform through which data associated with money laundering or other crimes is furnished to FIU-IND and through which regulated entities report suspicious financial…
- Proceeds of crimeAny property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, or the value of such property — and where the property is held outside India, property of…
- Regulated EntityIFSCA's term for a unit that holds its licence, recognition, registration or authorisation — the entity the IFSCA (AML, CFT and KYC) Guidelines, 2022 place their duties on.
- Virtual Digital Asset Service ProviderA provider of services relating to virtual digital assets, classified as a reporting entity under section 2(1)(wa) of the PMLA and therefore subject to registration, record-keeping and reporting obligations — the status…
- FIU-INDIndia's central national agency for receiving, processing, analysing and disseminating information on suspect financial transactions, set up in November 2004 and reporting to the Economic Intelligence Council.