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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....e of India on July 01, 2005 by the Department of Revenue, Ministry of Finance, 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 nonbanking 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 made 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 b....
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....rnment order dated August 27, 2009 Annexure 2: Government order dated March 14, 2019 Section 1: Overview 1.1. Introduction 1.1.1 The Directives as outlined below provide a general background and summary of the main provisions of the applicable anti-money laundering and anti-terrorist 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 client....
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....termediary. 1.2.3 It may, however, be clarified that for the purpose of suspicious transactions reporting, apart from 'transactions integrally connected', 'transactions remotely connected or related' shall also be considered. In case there is a variance in CDD/AML standards prescribed by SEBI and the regulators of the host country, branches/overseas 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 ....
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.... subsidiaries; b) Client acceptance policy and client due diligence measures, including requirements for proper identification; c) Maintenance of records; d) Compliance with relevant statutory and regulatory requirements; e) Co-operation with the relevant law enforcement authorities, including the timely disclosure of information; and f) Role of internal audit or compliance function to ensure compliance with the policies, procedures, 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 intermedi....
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....al person is a partnership; or iii. more than 15% of the property or capital or profits of the juridical person, where the juridical person is an unincorporated association or body of individuals. bb) In cases where there exists doubt under clause (aa) above as to whether the person with the controlling ownership interest is the beneficial owner or where no natural person exerts control through ownership interests, the identity of the natural person exercising control over the juridical person through other means. Explanation: Control 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 ....
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....nt business relationship or transaction. In a nutshell, the following safeguards are to be followed while accepting the clients: a) No account is opened in a fictitious / benami name or on an anonymous basis. b) Factors of risk perception (in terms of monitoring suspicious transactions) of the client are clearly defined having regard to clients' location (registered office address, correspondence addresses and other addresses if applicable), nature of business activity, trading turnover etc. and manner of making payment for transactions undertaken. The parameters shall enable classification of clients into low, medium and 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 intermed....
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....that the registered intermediaries shall adopt an enhanced client due diligence process for higher risk categories of clients. Conversely, a simplified client due diligence process may be adopted for lower risk categories of clients. In line with the risk-based approach, the type and amount of identification information and documents that registered intermediaries shall obtain necessarily depend on the risk category of a particular client. 2.2.3.2 Further, low risk provisions shall not apply when there are suspicions of ML/FT or when other factors give rise to a belief that the customer does not in fact pose a low risk 2.2.3.3 Risk Assessment^2 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....
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....ransactions with clients from or situate in such high risk countries and geographic areas or delivery of services through such high risk countries or geographic areas. h) Non face to face clients i) Clients with dubious reputation as per public information available etc. The above mentioned list is only illustrative and the intermediary shall exercise independent judgment to ascertain whether any other set of clients shall be classified as CSC or not. 2.2.5 Client identification procedure: 2.2.5.1 The KYC policy shall clearly spell out the client identification procedure to be carried out at different stages i.e. while establishing the intermediary - client relationship, while carrying out transactions for the client or when the intermediary has doubts regarding 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....
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.... PMLA, SEBI Act and Regulations, directives and circulars issued thereunder so that the intermediary is aware of the clients on whose behalf it is dealing. 2.2.5.3 Every intermediary shall formulate and implement a CIP which shall incorporate the requirements of the PML Rules Notification No. 9/2005 dated July 01, 2005 (as amended from time to time), which notifies rules for maintenance of records of the nature and value of transactions, the procedure and manner of maintaining and time for furnishing of information and verification of records of the identity of the clients of the banking companies, financial institutions and intermediaries of securities market and such other additional requirements that it considers appropriate to enable it to determine the true identity of its clients. 2.2.5.4 It may be noted that irrespective of the amount of 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 th....
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.... a) the beneficial owner of the account; b) the volume of the funds flowing through the account; and c) for selected transactions: i. the origin of the funds ii. the form in which the funds were offered or withdrawn, e.g. cheques, demand drafts etc. iii. the identity of the person undertaking the transaction; iv. the destination of the funds; v. the form of instruction and authority. 2.3.4 Registered Intermediaries shall ensure that all client and transaction records and information are available on a timely basis to the competent investigating authorities. Where required by the investigating authority, they shall retain certain records, e.g. client identification, account files, and business correspondence, for periods which may exceed those required under the SEBI Act, Rules and Regulations framed thereunder PMLA, other relevant legislations, Rules and Regulations or Exchange byelaws 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 trans....
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....nal, shall be maintained at least for the minimum period prescribed under the relevant Act and Rules (PMLA and rules framed thereunder as well SEBI Act) and other legislations, Regulations or exchange bye-laws or circulars. b) Registered intermediaries shall maintain and preserve the records of documents evidencing the identity of its clients and beneficial owners (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents) as well as account files and business correspondence for a period of five years after the business relationship between a client and intermediary has ended or the account has been closed, whichever is later. 2.5.4 In situations where the records relate to on-going investigations or transactions which have been the subject of a suspicious transaction reporting, they shall be retained until it is confirmed that the case has been closed. 2.5.5 Records of information reported to the Director, Financial Intelligence Unit - India (FIU - IND)^5: Registered Intermediaries shall maintain and preserve the records of information related to transactions, whether attempted or ex....
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....saction contained in PML Rules as amended from time to time. 2.7.2 A list of circumstances which may be in the nature of suspicious transactions is given below. This list is only illustrative and whether a particular transaction is suspicious or not will depend upon the background, details of the transactions and other facts and circumstances: a) Clients whose identity verification seems difficult or clients that appear not to cooperate b) Asset management services for clients where the source of the funds is not clear or not in keeping with clients' apparent standing /business activity; c) Clients based in high risk jurisdictions; d) Substantial increases in business without apparent cause; e) Clients transferring large sums of money to or from overseas locations with instructions for payment in cash; f) Attempted transfer of investment proceeds to apparently unrelated third parties; g) Unusual transactions by CSCs and businesses undertaken by offshore banks/financial services, businesses reported to be in the nature of export- import of small items. 2.7.3 Any suspicious transaction shall be immediate....
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....are not opened in the name of anyone whose name appears in said list. Registered intermediaries shall continuously scan all existing accounts to ensure that no account is held by or linked to any of the entities or individuals included in the list. Full details of accounts bearing resemblance with any of the individuals/entities in the list shall immediately be intimated to SEBI and FIUIND. 2.9. Procedure for freezing of funds, financial assets or economic resources or related services 2.9.1 Section 51A of the Unlawful Activities (Prevention) Act, 1967 (UAPA), relating to the purpose of prevention of, and for coping with terrorist activities was brought into effect through UAPA Amendment Act, 2008. In this regard, the Central Government has issued an Order dated August 27, 2009 (Annexure 1) detailing the procedure for the implementation of Section 51A of the UAPA.^6 2.9.2 In view of the reorganization of Divisions in the Ministry of Home Affairs and allocation of work relating to countering of terror financing to the Counter Terrorism and Counter Radicalization (CTCR) Division, the Government has modified the earlier order dated August 27, 2009 by the order dat....
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....to be reported. 2.10.3 Intermediaries shall not put any restrictions on operations in the accounts where an STR 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 aut....
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.... FIU - IND. 2.12. Employees' Hiring/Employee's Training/ Investor Education 2.12.1 Hiring of Employees 2.12.1.1 The registered intermediaries shall have 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 Implemen....
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....ds Registry (CKYCR) Authorization of Central Registry of Securitization and Asset Reconstruction and Security interest of India (CERSAI) for receiving, storing, safeguarding, retrieving the KYC records and finalizing template of KYC 8. CIR/IMD/FPI& C/59/2016 June 10, 2016 Know Your Client (KYC) norms for ODI subscribers, transferability of ODIs, reporting of suspicious transactions, periodic review of systems and modified ODI reporting format Applicability of Indian KYC/AML norms for Client Due Diligence, KYC Review, Suspicious Transactions Report, Reporting of complete transfer trail of ODIs, Reconfirmation of ODI positions, Periodic Operational Evaluation 9. CIR/MIRSD /29/2016 January 22, 2016 Know Your Client Requirements - Clarification on voluntary adaptation of Aadhaar based e-KYC process Client identification and authentication from UIDAI, Investment Limit and mode of payment to Mutual Funds, PAN verification, additional due diligence in case of material difference in information 10. CIR/IMD/FIIC /11/2014 June 16, 2014 Know Your Client (KYC) requirements fo....
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....fy the identity of persons who beneficially own or control the securities account for clients other than individuals or trusts and client which is a trust. Exemption in case of listed companies, Applicability for foreign investors and Implementation 17. CIR/MIRSD/ 01/2013 January 04, 2013 Rationalization process for obtaining PAN by Investors Verification the PAN of clients online at the Income Tax website 18. CIR/MIRSD/ 11/2012 September 5,2012 Know Your Client Requirements Clarifications for Foreign Investors viz. FIIs, Sub Accounts and QFIs w.r.t. implementation of SEBI circulars no. CIR /MIRSD/ 16/ 2011 dated August 22, 2011 and MIRSD/ SE/ Cir-21/ 2011 dated October 5, 2011 on know your client norms 19. CIR/MIRSD/ 09/2012 August 13, 2012 Aadhaar Letter as Proof of Address for Know Your Client (KYC) norms. Admissibility of Aadhaar letter issued by UIDAI as Proof of Address in addition to its presently being recognized as Proof of Identity 20. MIRSD/ Cir-5 /2012 April 13, 2012....
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....spondence address Capturing of address other than that of the BO as the correspondence address. 28. CIR/MRD/ DMS/13/2010 August 31, 2010 Guidelines on the Execution of Power of Attorney by the Client in favour of Stock Broker/ DP Clarifications on the Execution of the POA by the client 29. CIR/MRD/ DMS/13/ 2010 April 23, 2010 Guidelines on the Execution of Power of Attorney by the Client in favour of Stock Broker/ DP Guidelines on the Execution of Power of Attorney by the Client 30. CIR/ISD/ AML/2/2010 June 14, 2010 Additional Requirements for AML/ CFT Additional Requirements on retention of documents, monitoring, tipping off, updation of records and other clarifications. 31. CIR/ISD/ AML/1/2010 February 12, 2010 Master Circular -AML/ CFT Framework for AML/ CFT including procedures for CDD, client identification, record keeping & retention, monitoring and reporting of STRs 32. SEBI/ MIRSD/ Cir No.02/ 2010 January 18, 2010 Mandatory Requirement of in-person verification of clients. In-person verification done for opening beneficial ow....
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....D/ DoP/ Dep/ Cir- 12/ 2007 September 7, 2007 KYC Norms for Depositories Proof of Identity (POI) and Proof of Address (POA) for opening a Beneficiary Owner (BO) Account for non - body corporates 42. MRD/ DoP/ Cir-05/ 2007 April 27, 2007 PAN to be the sole identification number for all transactions in the securities market Mandatory requirement of PAN for participants transacting in the securities market. 43. ISD /CIR/ RR/ AML/2/ 06 March 20, 2006 PMLA Obligations Of intermediaries in terms of Rules notified there under Procedure for maintaining and preserving records, reporting requirements and formats of reporting cash transactions and suspicious transactions 44. ISD/ CIR/ RR/ AML/1/ 06 January 18, 2006 Directives on AML Standards Framework for AML and CFT including policies and procedures, Client Due Diligence requirements, record keeping, retention, monitoring and reporting 45. SEBI/ MIRSD/ DPS - 1/ Cir-31/ 2004 August 26, 2004 Unifor....