TaxTMI 
TaxTMI 
Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed there under
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.... Government of India. 2. As per the provisions of the PMLA, every banking company, financial institution (which includes chit fund company, a co-operative bank, a housing finance institution and a non-banking financial company) and intermediary (includes a stock-broker, sub-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, asset management company, depository participant, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with the securities market and registered under Section 12 of the Securities and Exchange Board of India Act, 1992 (SEBI Act)) shall have to adhere to client account opening procedures and maintain records of such transactions as prescribed by the PMLA and rules notified there under. 3. Pursuant to amendments made to the PMLA and Rules thereunder, updated guidelines in the context of recommendations made by Financial Action Task force (FATF) on anti-money laundering standards is enclosed. These guidelines have been divided into two parts; the first part is an overview on the background and essential principles that concern combating Money Laundering (ML) and Te....
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.... financing legislations in India. They also provide guidance on the practical implications of the Prevention of Money Laundering Act, 2002 (PMLA). The Directives also set out the steps that a registered intermediary or its representatives shall implement to discourage and to identify any money laundering or terrorist financing activities. The relevance and usefulness of these Directives will be kept under review and it may be necessary to issue amendments from time to time. 1.1.2 These Directives are intended for use primarily by intermediaries registered under Section 12 of the Securities and Exchange Board of India Act, 1992 (SEBI Act). While it is recognized that a "one- size-fits-all" approach may not be appropriate for the securities industry in India, each registered intermediary shall consider the specific nature of its business, organizational structure, type of clients and transactions, etc. when implementing the suggested measures and procedures to ensure that they are effectively applied. The overriding principle is that they shall be able to satisfy themselves that the measures taken by them are adequate, appropriate and abide by the spirit of such measures and the req....
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....s subsidiaries of intermediaries are required to adopt the more stringent requirements of the two. 1.3. Policies and Procedures to Combat Money Laundering and Terrorist financing 1.3.1 Essential Principles: 1.3.1.1 These Directives have taken into account the requirements of the PMLA as applicable to the intermediaries registered under Section 12 of the SEBI Act. The detailed Directives in Section II have outlined relevant measures and procedures to guide the registered intermediaries in preventing ML and TF. Some of these suggested measures and procedures may not be applicable in every circumstance. Each intermediary shall consider carefully the specific nature of its business, organizational structure, type of client and transaction, etc. to satisfy itself that the measures taken by it are adequate and appropriate and follow the spirit of the suggested measures in Section II and the requirements as laid down in the PMLA. 1.3.2 Obligation to establish policies and procedures: 1.3.2.1 Global measures taken to combat drug trafficking, terrorism and other organized and serious crimes have all emphasized the need for financial institutions, including securities market intermediar....
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.... and controls relating to the prevention of ML and TF, including the testing of the system for detecting suspected money laundering transactions, evaluating and checking the adequacy of exception reports generated on large and/or irregular transactions, the quality of reporting of suspicious transactions and the level of awareness of front line staff, of their responsibilities in this regard. The internal audit function shall be independent, adequately resourced and commensurate with the size of the business and operations, organization structure, number of clients and other such factors Section 2: Detailed Directives 2.1. Written Anti Money Laundering Procedures 2.1.1 Each registered intermediary shall adopt written procedures to implement the anti- money laundering provisions as envisaged under the PMLA. Such procedures shall include inter alia, the following three specific parameters which are related to the overall 'Client Due Diligence Process': a) Policy for acceptance of clients b) Procedure for identifying the clients c) Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR). 2.2. Client Due Diligence (CDD) 2.2.1 The CDD measures ....
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....rol through other means can be exercised through voting rights, agreement, arrangements or in any other manner. cc) Where no natural person is identified under clauses (aa) or (bb) above, the identity of the relevant natural person who holds the position of senior managing official. ii. For client which is a trust: Where the client is a trust, the intermediary shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons, through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership. iii. Exemption in case of listed companies: Where the client or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies. iv. Applicability for foreign investors: Intermediaries dealing with foreign investors' may be guided by the clarifications issued vide SEBI ....
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.... high risk. Clients of special category (as given below) may, if necessary, be classified even higher. Such clients require higher degree of due diligence and regular update of Know Your Client (KYC) profile. c) Documentation requirements and other information to be collected in respect of different classes of clients depending on the perceived risk and having regard to the requirements of Rule 9 of the PML Rules, Directives and Circulars issued by SEBI from time to time. d) Ensure that an account is not opened where the intermediary is unable to apply appropriate CDD measures/ KYC policies. This shall apply in cases where it is not possible to ascertain the identity of the client, or the information provided to the intermediary is suspected to be non - genuine, or there is perceived non - co-operation of the client in providing full and complete information. The market intermediary shall not continue to do business with such a person and file a suspicious activity report. It shall also evaluate whether there is suspicious trading in determining whether to freeze or close the account. The market intermediary shall be cautious to ensure that it does not return securities of money ....
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....March 12, 2014 a) Registered intermediaries shall carry out risk assessment to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk with respect to its clients, countries or geographical areas, nature and volume of transactions, payment methods used by clients, etc. The risk assessment shall also take into account any country specific information that is circulated by the Government of India and SEBI from time to time, as well as, the updated list of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions (these can be accessed at the URL - http://www.un.org/sc/committees/1267/aq_sanctions_list.shtml and http://www.un.org/sc/committees/1988/list.shtml) b) The risk assessment carried out shall consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied. The assessment shall be documented, updated regularly and made available to competent authorities and self-regulating bodies, as and when required. 2.2.4 Clients of special category (CSC): Such clients shal....
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....garding the veracity or the adequacy of previously obtained client identification data. Intermediaries shall be in compliance with the following requirements while putting in place a Client Identification Procedure (CIP): a) All registered intermediaries shall proactively put in place appropriate risk management systems to determine whether their client or potential client or the beneficial owner of such client is a politically exposed person. Such procedures shall include seeking relevant information from the client, referring to publicly available information or accessing the commercial electronic databases of PEPS. Further, the enhanced CDD measures as outlined in clause 2.2.5 shall also be applicable where the beneficial owner of a client is a PEP. b) All registered intermediaries are required to obtain senior management approval for establishing business relationships with PEPs. Where a client has been accepted and the client or beneficial owner is subsequently found to be, or subsequently becomes a PEP, registered intermediaries shall obtain senior management approval to continue the business relationship. c) Registered intermediaries shall also take reasonable measure....
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.... investment made by clients, no minimum threshold or exemption is available to registered intermediaries (brokers, depository participants, AMCs etc.) from obtaining the minimum information/documents from clients as stipulated in the PML Rules/ SEBI Circulars (as amended from time to time) regarding the verification of the records of the identity of clients. Further no exemption from carrying out CDD exists in respect of any category of clients. In other words, there shall be no minimum investment threshold/ category-wise exemption available for carrying out CDD measures by registered intermediaries. This shall be strictly implemented by all intermediaries and non-compliance shall attract appropriate sanctions. 2.2.6 Reliance on third party for carrying out Client Due Diligence (CDD) SEBI Circular No. CIR/ MIRSD/ 1/ 2014 dated March 12, 2014 2.2.6.1 Registered intermediaries may rely on a third party for the purpose of a) identification and verification of the identity of a client and b) Determination of whether the client is acting on behalf of a beneficial owner, identification of the beneficial owner and verification of the identity of the beneficial owner. Such third party ....
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....nt legislations, Rules and Regulations or Exchange bye-laws or circulars. 2.3.5 More specifically, all the intermediaries shall put in place a system of maintaining proper record of transactions prescribed under Rule 3 of PML Rules as mentioned below: a) all cash transactions of the value of more than ten lakh rupees or its equivalent in foreign currency; b) all series of cash transactions integrally connected to each other which have been individually valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency; c) all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions; d) all suspicious transactions whether or not made in cash and by way of as mentioned in the Rules. 2.4. Information to be maintained 2.4.1 Intermediaries are required to maintain and preserve the following information in respect of transactions referred to in Rule 3 of PML Rules: a) t....
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....ion reported to the Director, Financial Intelligence Unit - India (FIU - IND) SEBI Circular No. CIR/ MIRSD/ 1/ 2014 dated March 12, 2014: Registered Intermediaries shall maintain and preserve the records of information related to transactions, whether attempted or executed, which are reported to the Director, FIU - IND, as required under Rules 7 and 8 of the PML Rules, for a period of five years from the date of the transaction between the client and the intermediary. 2.6. Monitoring of transactions 2.6.1 Regular monitoring of transactions is vital for ensuring effectiveness of the AML procedures. This is possible only if the intermediary has an understanding of the normal activity of the client so that it can identify deviations in transactions / activities. 2.6.2 The intermediary shall pay special attention to all complex unusually large transactions / patterns which appear to have no economic purpose. The intermediary may specify internal threshold limits for each class of client accounts and pay special attention to transactions which exceeds these limits. The background including all documents/office records /memorandums/clarifications sought pertaining to such transactions....
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....shore banks/financial services, businesses reported to be in the nature of export- import of small items. 2.7.3 Any suspicious transaction shall be immediately notified to the Money Laundering Control Officer or any other designated officer within the intermediary. The notification may be done in the form of a detailed report with specific reference to the clients, transactions and the nature /reason of suspicion. However, it shall be ensured that there is continuity in dealing with the client as normal until told otherwise and the client shall not be told of the report/ suspicion. In exceptional circumstances, consent may not be given to continue to operate the account, and transactions may be suspended, in one or more jurisdictions concerned in the transaction, or other action taken. The Principal Officer/ Money Laundering Control Officer and other appropriate compliance, risk management and related staff members shall have timely access to client identification data and CDD information, transaction records and other relevant information. 2.7.4 It is likely that in some cases transactions are abandoned or aborted by clients on being asked to give some details or to provide docu....
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.... of the individuals or entities listed in the Schedule to the Order, or any other person engaged in or suspected to be engaged in terrorism. The Government is also further empowered to prohibit any individual or entity from making any funds, financial assets or economic resources or related services available for the benefit of the individuals or entities listed in the Schedule to the Order or any other person engaged in or suspected to be engaged in terrorism. 2.9.3 The stock exchanges, depositories and registered intermediaries shall ensure effective and expeditious implementation of the procedure laid down in the UAPA Order dated August 27, 2009 as listed below SEBI Circular No. ISD/ AML/ CIR - 2/ 2009 dated October 23, 2009 a) On receipt of the updated list of individuals/ entities subject to UN sanction measures (hereinafter referred to as 'list of designated individuals/ entities)from the Ministry of External Affairs (MHA)'; SEBI will forward the same to stock exchanges, depositories and registered intermediaries for the following purposes: i. To maintain updated designated lists in electronic form and run a check on the given parameters on a regular basis to verify ....
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....Central Agencies so as to ensure that the individuals/ entities identified by the stock exchanges, depositories, registered intermediaries are the ones listed as designated individuals/entities and the funds, financial assets or economic resources or related services, reported by stock exchanges, depositories, registered intermediaries are held by the designated individuals/entities. This verification would be completed within a period not exceeding 5 working days from the date of receipt of such particulars. c) In case, the results of the verification indicate that the properties are owned by or held for the benefit of the designated individuals/entities, an order to freeze these assets under section51A of the UAPA would be issued within 24 hours of such verification and conveyed electronically to the concerned depository under intimation to SEBI and FIU-IND. The order shall take place without prior notice to the designated individuals/entities. d) Implementation of requests received from foreign countries under U.N. Securities Council Resolution 1373 of 2001. i. U.N. Security Council Resolution 1373 obligates countries to freeze without delay the funds or other assets of pers....
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....ication together with full details of the asset frozen given by any individual or entity informing of the funds, financial assets or economic resources or related services have been frozen inadvertently, to the nodal officer of IS-I Division of MHA as per the contact details given in paragraph 5(ii) above within two working days. The Joint Secretary (IS-I), MHA, being the nodal officer for (IS-I) Division of MHA, shall cause such verification as may be required on the basis of the evidence furnished by the individual/entity and if he is satisfied, he shall pass an order, within fifteen working days, unfreezing the funds, financial assets or economic resources or related services, owned/held by such applicant under intimation to the concerned stock exchanges, depositories and registered intermediaries. However, if it is not possible for any reason to pass an order unfreezing the assets within fifteen working days, the nodal officer of IS-I Division shall inform the applicant. f) Communication of Orders under section 51A of Unlawful Activities (Prevention) Act. i. All Orders under section 51A of the UAPA relating to funds, financial assets or economic resources or related services,....
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....TR has been made. Intermediaries and their directors, officers and employees (permanent and temporary) shall be prohibited from disclosing ("tipping off") the fact that a STR or related information is being reported or provided to the FIU-IND. This prohibition on tipping off extends not only to the filing of the STR and/ or related information but even before, during and after the submission of an STR. Thus, it shall be ensured that there is no tipping off to the client at any level It is clarified that the registered intermediaries, irrespective of the amount of transaction and/or the threshold limit envisaged for predicate offences specified in part B of Schedule of PMLA, 2002, shall file STR if they have reasonable grounds to believe that the transactions involve proceeds of crime. 2.11. Designation of officers for ensuring compliance with provisions of PMLA 2.11.1 Appointment of a Principal Officer: 2.11.1.1 To ensure that the registered intermediaries properly discharge their legal obligations to report suspicious transactions to the authorities, the Principal Officer would act as a central reference point in facilitating onward reporting of suspicious transactions and for....
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.... adequate screening procedures in place to ensure high standards when hiring employees. They shall identify the key positions within their own organization structures having regard to the risk of money laundering and terrorist financing and the size of their business and ensure the employees taking up such key positions are suitable and competent to perform their duties. 2.12.2 Employees' Training: 2.12.2.1 Intermediaries must have an ongoing employee training programme so that the members of the staff are adequately trained in AML and CFT procedures. Training requirements shall have specific focuses for frontline staff, back office staff, compliance staff, risk management staff and staff dealing with new clients. It is crucial that all those concerned fully understand the rationale behind these directives, obligations and requirements, implement them consistently and are sensitive to the risks of their systems being misused by unscrupulous elements. 2.12.3 Investors Education 2.12.3.1 Implementation of AML/CFT measures requires intermediaries to demand certain information from investors which may be of personal nature or has hitherto never been called for. Such information can....
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....anuary 22, 2016 Know Your Client Requirements - Clarification on voluntary Client identification and authentication from UIDAI, Investment Limit and mode adaptation of Aadhaar based e-KYC process of payment to Mutual Funds, PAN verification, additional due diligence in case of material difference in information 9. CIR/ IMD/ FIIC/ 11/ 2014 June 16, 2014 Know Your Client (KYC) requirements for Foreign Portfolio Investors (FPIs) Process to be followed by DDPs to share the relevant KYC documents of FPIs with the banks and record of transfer of documents 10. CIR/ MIRSD/ 1/ 2014 March 12, 2014 Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Obligations of Securities Market Intermediaries under the Prevention of Money laundering Act, 2002 and Rules framed there under Consequential modifications and additions to Master Circular CIR/ ISD/ AML/ 3/ 2010 dated December 31, 2010 in respect of Risk Assessment, Reliance on third party for carrying out Client Due Diligence (CDD), Record keeping requirements, Records of information reported to the Director, Financial Intelligence Unit - India (FIU-IND), Appointment of a Designated Director 11. CIR/ MIRSD/ 13/ 201....
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....lementation 20. MIRSD/ Cir- 26 / 2011 December 23, 2011 Guidelines in pursuance of the SEBI KYC Registration Agency (KRA) Guidelines for Intermediaries, Guidelines Regulations, 2011 and for In-Person Verification (IPV) for KRAs, Guidelines w.r.t In-Person Verification (IPV) 21. MIRSD/ Cir-23/ 2011 December 2, 2011 The Securities and Exchange Board of India (KYC Registration Agency) Regulations, 2011. Centralization of the KYC records to avoid duplication of KYC process 22. CIR/ MIRSD/ 22/ 2011 October 25, 2011 'In-person' verification (IPV) of clients by subsidiaries of stock exchanges, acting as stock brokers Clarification w.r.t ultimate responsibility for 'in-person' verification 23. MIRSD/ SE/ Cir-21/ 2011 October 5, 2011 Uniform Know Your Client (KYC) Requirements for the Securities Markets Clarification w.r.t different KYC forms used by Market Intermediaries, Guidelines for KYC form capturing the basic details about the client and additional details specific to the area of activity of the intermediary being obtained 24. CIR/ MIRSD/ 16/ 2011 August 22, 2011 Simplification and Rationalization of Trading Account Opening Process Client account opening Proc....
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....ng procedures for CDD, client identification, record keeping & retention, monitoring and reporting of suspicious transactions. 35. MIRSD/ DPSIII/ 130466/ 2008 July 2, 2008 In-Person verification of clients by stock-brokers Responsibility of stock brokers to ensure in - person verification by its own staff. 36. MRD/ DoP/ Cir-20/ 2008 June 30, 2008 Mandatory Requirement of PAN Exception for certain classes of persons from PAN being the sole identification number for all participants trading in the securities market. 37. F.No.47/ 2006/ ISD/ SR/ 122539 April 4, 2008 In-person verification of BO's when opening demat accounts In-person verification to be carried out by staff of depository participant. 38. MRD/ DoP/ Cir- 20/ 2008 April 3, 2008 Exemption from mandatory requirement of PAN. Exemption for investors residing in the State of Sikkim from PAN being the sole identification number for trading in the securities market. 39. F.No.47- 2006 /ISD/ SR/ 118153/ 2008 February 22, 2008 In-Person verification of clients by depositories Clarification on various topics relating to 'in person' verification of BOs at the time of opening demat accounts 40. MRD/ DoP/ Dep/....