Sebi tightens norms to check money laundering

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The Securities and Exchange Board of India (Sebi) on Wednesday directed market intermediaries, su­ch as stockbroking firms, to appoint a ‘designated director’ to ensure overall compliance with the Prevention of Money Laundering Act (PML) to eliminate the risk of money laundering and terrorist financing with respect to their clients.

In a circular, Sebi said in addition to the existing requirement of designation of a principal officer, the registered intermediaries will also designate a person as a ‘designated director’ to monitor compliance with the PML rules.

“Designated director means a person designated by the reporting entity to ensure overall compliance with the obligations imposed under Chapter IV of the PML Act and the rules,” the market regulator said.

Registered intermediaries are expected to take measures to mitigate money laundering and terrorist financing risks with respect to their clients, their countries, in terms of nature and volume of transactions and payment methods used by clients.

The risk assessment also takes into account any country-specific information 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 UN Security Council resolutions. Sebi said the person to be appointed as designated director to ensure compliance with PML rules has to be the managing director or a whole-time director duly authorised by the board of directors, if the reporting entity is a company.

The designated director has to be the managing partner in case of a partnership firm, proprietor in case of a proprietorship concern and managing trustee if the reporting entity is a trust.

In case of a person or individual who controls and manages the affairs of the stockbroking firm, they will have to take this responsibility of designated director monitoring compliance with the PML rules. Sebi has reduced the time for maintaining the transaction records of clients by the intermediaries to five years from 10 years.

Deven Choksey MD of KR Choksey Shares and Securities, said, “Most of the corporate brokerages are already implementing the provisions of the PML rules, it is the individuals who may not be complying in letter and spirit. As for maintenance and preservation of transactions details, most of the brokerages do it in soft copies.”

Sebi said registered intermediaries will maintain and preserve the record of information related to transactions, whether attempted or executed, which are reported to the director, financial intelligence unit - India, as required under rules 7 & 8 of the PML Act, for a period of five years from the date of the transaction between the client and the intermediary.

Registered intermediaries have to now maintain and preserve the record of documents evidencing the identity of clients or beneficial owners, as well as account files and business correspondence for a period of five years after the business relationship between a client and the intermediary has ended or the account has been closed, whichever is later, Sebi said.

In case of mutual funds, compliance of the PML rules has to be monitored by boards of the asset management companies and the trustees while in case of other intermediaries, it will be done by their boards of directors. Sebi directed the exchanges and depositories to monitor the compliance of PML rules through half-yearly internal audits and inspection of the registered stockbrokers.

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