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TMI BlogGuidelines 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.X X X X Extracts X X X X X X X X Extracts X X X X ..... Act were published in the Gazette 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of PMLA 2.12. Employees Hiring/Employee s Training/ Investor Education SCHEDULE I List of key circulars/ directives issued with regard to KYC, CDD, AML and CFT ANNEXURES Annexure 1: Government 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 Exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency iii. All suspicious transactions whether or not made in cash and including, interalia, credits or debits into from any non-monetary account such as demat account, security account maintained by the registered intermediary. 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 inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers awareness and vigilance to guard against ML and TF 1.3.2.3 Policies and procedures to combat ML shall cover: a) Communication of group policies relating to prevention of ML and TF to all management and relevant staff that handle account information, securities transactions, money and client records etc. whether in branches, departments or 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, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcises control through ownership or who ultimately has a controlling ownership interest. Explanation : Controlling ownership interest means ownership of/entitlement to: i. more than 25% of shares or capital or profits of the juridical person, where the juridical person is a company; ii. more than 15% of the capital or profits of the juridical person, where the juridical 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 natura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2.2 Policy for acceptance of clients: 2.2.2.1 All registered intermediaries shall develop client acceptance policies and procedures that aim to identify the types of clients that are likely to pose a higher than average risk of ML or TF. By establishing such policies and procedures, they will be in a better position to apply client due diligence on a risk sensitive basis depending on the type of client 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 hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FT). 2.2.3 Risk-based Approach: 2.2.3.1 It is generally recognized that certain clients may be of a higher or lower risk category depending on the circumstances such as the client s background, type of business relationship or transaction etc. As such, the registered intermediaries shall apply each of the client due diligence measures on a risk sensitive basis. The basic principle enshrined in this approach is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Action task Force (FATF) statements that inter alia identify such countries or geographic areas that do not or insufficiently apply the FATF Recommendations, published by the FATF on its website (www.fatf-gafi.org) from time to time, shall also independently access and consider other publicly available information along with any other information which they may have access to. However, this shall not preclude intermediaries from entering into legitimate transactions 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 relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the KYC norms which have already been prescribed or which may be prescribed by SEBI from time to time, all registered intermediaries shall frame their own internal directives based on their experience in dealing with their clients and legal requirements as per the established practices. Further, the intermediary shall conduct ongoing due diligence where it notices inconsistencies in the information provided. The underlying objective shall be to follow the requirements enshrined in the 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 additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrencies involved, if any) so as to provide, if necessary, evidence for prosecution of criminal behaviour. 2.3.3 Should there be any suspected drug related or other laundered money or terrorist property, the competent investigating authorities would need to trace through the audit trail for reconstructing a financial profile of the suspect account. To enable this reconstruction, registered intermediaries shall retain the following information for the accounts of their clients in order to maintain a satisfactory audit trail: 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 require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down in Rule 9 of the PML Rules and such other additional requirements that it considers appropriate. Records evidencing the identity of its clients and beneficial owners as well as account files and business correspondence shall be maintained and preserved 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. 2.5.3 Thus the following document retention terms shall be observed: a) All necessary records on transactions, both domestic and international, 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 betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.6.4 Further, the compliance cell of the intermediary shall randomly examine a selection of transactions undertaken by clients to comment on their nature i.e. whether they are in the nature of suspicious transactions or not. 2.7. Suspicious Transaction Monitoring and Reporting 2.7.1 Intermediaries shall ensure that appropriate steps are taken to enable suspicious transactions to be recognized and have appropriate procedures for reporting suspicious transactions. While determining suspicious transactions, intermediaries shall be guided by the definition of a suspicious transaction 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 apparen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e while expanding business relationships with the identified country or persons in that country etc. 2.8. List of Designated Individuals/ Entities 2.8.1 An updated list of individuals and entities which are subject to various sanction measures such as freezing of assets/accounts, denial of financial services etc., as approved by the Security Council Committee established pursuant to various United Nations' Security Council Resolutions (UNSCRs) can be accessed at its website at http://www.un.org/sc/committees/1267/consolist.shtml . Registered intermediaries are directed to ensure that accounts 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) Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating any transaction or a series of transactions as suspicious. It shall be ensured that there is no undue delay in arriving at such a conclusion. c) The Non Profit Organization Transaction Reports (NTRs) for each month shall be submitted to FIU-IND by 15th of the succeeding month. d) The Principal Officer will be responsible for timely submission of CTR, STR and NTR to FIU-IND; e) Utmost confidentiality shall be maintained in filing of CTR, STR and NTR to FIUIND. f) No nil reporting needs to be made to FIU-IND in case there are no cash/ suspicious/ non profit organization transactions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reporting entity is an unincorporated association or a body of individuals, and f) such other person or class of persons as may be notified by the Government if the reporting entity does not fall in any of the categories above. 2.11.2.2 In terms of Section 13 (2) of the PMLA, the Director, FIU IND can take appropriate action, including levying monetary penalty, on the Designated Director for failure of the intermediary to comply with any of its AML/CFT obligations. 2.11.2.3 Registered intermediaries shall communicate the details of the Designated Director, such as, name designation and address to the Office of the Director, 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 compet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -PAN issued by CBDT for KYC compliance by FPI 3. SEBI/HO/MRD/DP/CIR/ P/2016/134 December 15, 2016 Master Circulars for Depositories Opening of BO Accounts 4. CIR/IMD/FPIC/ 123/ 2016 November 17, 2016 Review of requirement for copy of PAN Card to open accounts of FPIs Verification and submission of PAN Card by FPI 5. CIR/ MIRSD/120/ 2016 November 10, 2016 Uploading of the existing clients' KYC details with Central KYC Records Registry (CKYCR) System by the registered intermediaries Time lines for registered intermediaries in respect of uploading KYC data of the new and existing individual clients with CKYCR 6. SEBI/HO/IMD/DF3/ CIR/P/2016/ 84 September 14, 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 12. CIR/ MIRSD/ 13/2013 December 26, 2013 Know Your Client requirements Shifting of certain information in Section C of Part I to Part II of the AOF, information required to be captured in the systems of KRAs 13. CIR/MIRSD/ 09/2013 October 8, 2013 Know Your Client Requirements Acceptance of e-KYC service launched by UIDAI as a valid process for KYC verification 14. CIR/ MIRSD/ 07/2013 September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oof of Address in addition to its presently being recognized as Proof of Identity 20. MIRSD/ Cir-5 /2012 April 13, 2012 Uploading of the existing clients KYC details in the KYC Registration Agency (KRA) system by the intermediaries Process to avoid duplication of KYC, guidelines for uploading the KYC data of the existing clients, Schedule for implementation 21. MIRSD/ Cir- 26/2011 December 23, 2011 Guidelines in pursuance of the SEBI KYC Registration Agency (KRA) Regulations, 2011 and for In-Person Verification (IPV) Guidelines for Intermediaries, Guidelines for KRAs, Guidelines w.r.t In-Person Verification (IPV) 22. MIRSD/ Cir-23/2011 December 2, 2011 The Securities and Exchange Board of India (KYC Registration Agency) Regulations, 2011. Centralization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oker/ 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 539 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. 39. 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. 40. 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 41. MRD/ DoP/ Dep/ Cir- 12/ 2007 September 7, 2007 KYC Norms for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prohibition on acceptance/ giving of cash by brokers and on third party transfer of securities 48. SMDRP/ Policy/ Cir- 36/ 2000 August 4, 2000 KYC Norms for Depositories Documentary requirements for opening a beneficiary account. 49. SMD/ POLICY/ CIRCULARS /5-97 April 11, 1997 Client Registration Form Formats of client Registration Form and broker clients agreements 50. SMD-1/ 23341 Nov. 18, 1993 Regulation of transaction between clients and members Mandatory requirement to obtain details of clients by brokers. --------------- Notes: 1. CIR/ MIRSD/2/ 2013 dated January 24, 2013 2. SEBI Circular No. CIR/ MIRSD/ 1/ 2014 dated March 12, 2014 3. SEBI C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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