CIRCULAR,
CIR/MIRSD/1/2014, dated March 12, 2014
To,
All
Intermediaries registered with SEBI
(Through the
stock exchanges for stock brokers and sub brokers,
Depositories for
depository participants and
AMFI
for Asset Management Companies)
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
1. Please refer to
SEBI Master Circular CIR/ISD/AML/3/2010 dated December 31, 2010 on the captioned
subject.
2. In view of the
amendments to the Prevention of Money-laundering Act, 2002 (PML Act) and
amendments to the Prevention of Money-laundering (Maintenance of Records)
Rules, 2005 (PML Rules), it has been decided to make the following consequential
modifications and additions to the above referred SEBI Master Circular dated
December 31, 2010:
2.1. In clause 5
of Part II, after sub-clause 5.3.1, following sub-clause shall be inserted:
5.3.2 Risk
Assessment
i. 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
ii. 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. In clause 5
of Part II, after sub-clause 5.5, following sub-clause shall be inserted:
5.6 Reliance on
third party for carrying out Client Due Diligence (CDD)
i. 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 shall be regulated, supervised or monitored for, and have measures
in place for compliance with CDD and record-keeping requirements in line with
the obligations under the PML Act.
ii. Such
reliance shall be subject to the conditions that are specified in Rule 9 (2) of
the PML Rules and shall be in accordance with the regulations and circulars/
guidelines issued by SEBI from time to time. Further, it is clarified that the
registered intermediary shall be ultimately responsible for CDD and undertaking
enhanced due diligence measures, as applicable.
2.3. Record
keeping requirements:
a. In
sub-clause 8.1 of Part II regarding maintenance of records pertaining to
transactions of clients: The words "for a period of ten years"
shall be substituted with "for a period of five years".
b. In
sub-clause 8.2 of Part II regarding maintenance of records pertaining to
identity of clients: The words "The records of the identity of
clients have to be maintained and preserved for a period of ten years from the
date of cessation of transactions between the client and intermediary, i.e. the
date of termination of an account or business relationship between the client
and intermediary." shall be substituted with the following:
"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."
c. Sub-clause
8.3 (b) of Part II shall be substituted with the following:
"Registered
intermediaries shall maintain and preserve the record 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."
d. In
sub-clause 9.2 of Part II regarding monitoring of transactions: The words "preserved
for ten years" shall be substituted with "maintained and preserved
for a period of five years from the date of transaction between the client and
intermediary".
e. In clause
8 of Part II, after sub-clause 8.4, following sub-clause shall be inserted –
8.5 Records of
information reported to the Director, Financial Intelligence Unit - India
(FIU-IND): Registered
intermediaries shall maintain and preserve the record of information related to
transactions, whether attempted or executed, which are reported to the
Director, FIU-IND, as required under Rules 7 & 8 of the PML Rules, for a
period of five years from the date of the transaction between the client and
the intermediary.
2.4. In clause
14 of Part II, after sub-clause 14.1, following sub-clause shall be inserted:
14.2 Appointment
of a Designated Director
i. In addition
to the existing requirement of designation of a Principal Officer, the
registered intermediaries shall also designate a person as a 'Designated Director'.
In terms of Rule 2 (ba) of the PML Rules, the definition of a Designated
Director reads as under:
“Designated
Director means a person designated by the reporting entity to ensure overall
compliance with the obligations imposed under chapter IV of the Act and the
Rules and includes-
(i) the Managing Director or a
Whole-time Director duly authorized by the Board of Directors if the reporting
entity is a company,
(ii) the managing partner if the
reporting entity is a partnership firm,
(iii) the proprietor if the reporting
entity is a proprietorship concern,
(iv) the managing trustee if the
reporting entity is a trust,
(v) a person or individual, as the case
may be, who controls and manages the affairs of the reporting entity if the
reporting entity is an unincorporated association or a body of individuals, and
(vi) 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."
ii. In terms of
Section 13 (2) of the PML Act (as amended by the Prevention of Money-laundering
(Amendment) Act, 2012), 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.
iii. Registered
intermediaries shall communicate the details of the Designated Director, such
as, name, designation and address to the Office of the Director, FIU-IND.
3. Registered
intermediaries are directed to review their AML/CFT policies and procedures and
make changes to the same accordingly. The other provisions specified in the
SEBI Master Circular dated December 31, 2010 remain the same.
4. The Stock
Exchanges and Depositories are directed to:
a. bring the provisions of this Circular
to the notice of the Stock Brokers and Depository Participants, as the case may
be, and also disseminate the same on their websites;
b. make amendments to the relevant
bye-laws, rules and regulations for the implementation of the above decision in
co-ordination with one another, as considered necessary;
c. monitor the compliance of this
Circular through half-yearly internal audits and inspections; and
d. communicate to SEBI, the status of
the implementation of the provisions of this Circular.
5. In case of
Mutual Funds, compliance of this Circular shall be monitored by the Boards of
the Asset Management Companies and the Trustees and in case of other intermediaries,
by their Board of Directors.
6. This Circular is
being issued in exercise of powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act, 1992 and the Prevention of Money laundering
(Maintenance of Records) Rules, 2005 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities
market.
7. This Circular is
available on the SEBI website (www.sebi.gov.in) under
the section SEBI Home > Legal Framework > Circulars.
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