SEBI

SEBI’s Recent Circular on Amendment to the Guidelines on AML/CFT

On 16 June 2023, SEBI vide circular SEBI/HO/MIRSD/MIRSDSECFATF/P/CIR/2023/091 amended the Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) for market intermediaries. SEBI has highlighted the key modifications to existing AML norms, including the definition of a “group” as per amended rules, requirements for issuing policies and procedures for dealing with money laundering and terrorist financing, client verification procedures, registration of non-profit organizations on the DARPAN Portal etc. The present article shall discuss the key modifications made by the Board.

Amendments to the Guidelines on AML/CFT

An amendment to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 was made by the Government of India (GOI)  through gazette notification S.O. 1074(E) dated March 07, 2023 (PML eGazette dated March 07, 2023) with immediate effect.

In view of the amendments to the same and for further enhancing the effectiveness of the AML/CFT framework, certain provisions of the aforesaid Master Circular  were modified as mentioned below: –

Insertion of a New Paragraph 7A

There shall be the insertion of the following paragraph after paragraph 7 and before paragraph 8, namely- “7A. “group” shall have the same meaning assigned to it in clause (cba) of sub-rule (1) of rule 2 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 as amended from time to time.”¹

This addition can help in providing clarification regarding the meaning of group as provided under the legislation.

Substitution of Sub-Para (i) of Para 8

There shall be the substitution of sub-Para (i) of Para 8 with the issuing a statement of policies and procedures and implement, on a group basis where applicable, for dealing with ML and TF reflecting the current statutory and regulatory requirements.“²

It must be noted that the term “and implement” have been added to the new provision, which lays emphasis on the implementation of such policies and procedures rather than just the issuance of the same, which can help in dealing with Money Laundering (ML) and Terrorist Financing (TF) in an effective manner.

Modifications to Para 11

1. Various modifications have been made to Para 11, such as the substitution of 11
   (i), which the following paragraph –
   (ii) Verify the client’s identity using reliable, independent source documents, data or information. Where the client purports to act on behalf of a juridical person or individual or trust, the registered intermediary shall verify that any person purporting to act on behalf of such client is so authorised and verify the identity of that person.” ³

• The earlier provision used to end after the word ‘information “, which implies that the intermediaries were only required to verify the information of the clients; however, after the substitution, there is an addition of the requirement for verification of the authorisation of the person purporting to act on behalf of the juridical person or individual or trust by the registered intermediary (RE)
• In Paragraph 11 (iii) in item (a) titled “For clients other than individuals or trusts”,⁴ in the Explanation, in clause (i), for the nos. and symbol “25%”, the nos. and symbol “10%”  would be substituted.
• The explanation provides for the meaning of the term controlling ownership interest where as per the earlier provision, the ownership and entitlement were considered if the ownership or entitlement was with regards to more than 25% of shares or capital or profits of the juridical person, in case the judicial person was a company. However, as per the new provision, the requirement of 25% has been reduced to just 10 %, and instead of 15%, the same has been reduced to 10 % For clients, which is a trust”,⁵
• In Paragraph 11, (viii),  there has been the insertion of the following sub-paragraphs ]namely:- “(ix) Every registered intermediary shall register the details of a client, in case of the client being a non-profit organisation, on the DARPAN Portal of NITI Aayog, if not already registered, and maintain such registration records for a period of five years after the business relationship between a client and the registered intermediary has ended or the account has been closed, whichever is later.
  
  (x) Where the registered intermediary is suspicious that transactions related to money laundering or terrorist financing and reasonably believes that performing the CDD process will tip off the client, the registered intermediary shall not pursue the CDD process and shall instead file an STR with FIU-IND.”⁶

• The newly interested provision, i.e. (ix), obligates the RE for  the registration of the details of the client on the DARPAN portal of NITI Aayog in case of the client is a non-profit organisation and to retain such records for a period of 5 yrs,in the event of the end of the business relationship b/w the client and the RE or the closure of the account, whichever is later.⁷
• Sub para (x) directs the RE not to pursue the CDD process in case it is suspicious about the transactions being related to ML or TF, and conducting CDD shall tip off the client; rather, the RE must file an STR with FIUND in such case.

Substitution of Item (E) In Para 12 (iii)

The circular provides for the substitution of item (e), In Paragraph 12, (iii), item (e), with the following. “(e) “Politically Exposed Persons” (PEPs). PEP shall have the same meaning as given in clause (db) of sub-rule (1) of rule 2 of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. The additional norms applicable to PEP as contained in paragraph 14 of the Master Circular shall also be applied to the accounts of the family members or close relatives of PEPs.”⁸

The earlier provision had a separate meaning for the PEP; however, as per the new amendment, it has been stated that the term shall have the same meaning as that being provided in Rule 2(1)(db) of the PML rules 2005 along with the application of the additional norms as contained in paragraph 14 of the Master Circular to the accounts of the family members or close relatives of PEPs to the term PEP.

Insertion of A New Para 24A

After paragraph 24 and before paragraph 25, the following paragraph shall be inserted, namely-

“24A The Stock Exchanges and registered intermediary shall identify and assess the ML/TF risks that may arise in relation to the development of new products and new business practices, including new delivery mechanisms and the use of new or developing technologies for both new and existing products. The Stock Exchanges and registered intermediaries shall ensure the following: ⁹

a. To undertake the ML/TF risk assessments prior to the launch or use of such products, practices, services, technologies; and

 b. Adoption of a risk-based approach to manage and mitigate the risks”.

This new insertion shall facilitate a better detection of the ML /TL risks and resolution of the same.

Substitution of Para 47

Paragraph 47 would be substituted with the following, namely: –

 “In order to ensure expeditious and effective implementation of the provisions of Section 51A of UAPA, the Government of India has outlined a procedure through an order dated February 02, 2021 (Annexure 1) for strict compliance. These guidelines have been further amended vide a Gazette Notification dated June 08, 2021 (Annexure 2). A corrigendum dated March Page 4 of 4 15, 2023, has also been issued in this regard (Annexure 3). The list of Nodal Officers for UAPA is available on the website of MHA.¹⁰

The content till the guidelines dated 08.06.21 was already present in the previous provision as well; however, the aspect with regard to the issuance of the collegium dated 15.03.23 has also been added in the substituted provision

Insertion of 52A

After paragraph 52 and prior to paragraph 53, there has been the insertion of the following para, namely-

“52A. “The Stock Exchanges and the registered intermediaries shall leverage the latest technological innovations and tools for effective implementation of name screening to meet the sanctions requirements.”¹¹

This provision states that SEBI has directed the stock exchanges and the RE to make use of technological innovations and tools in order to implement name screening effectively for meeting the sanction requirements.

Insertion of a New Sub-Para 59(vii)

In Paragraph 59, after sub-paragraph (vi), the following sub-paragraph shall be inserted, which provides for the definition of a non-profit organization,  namely: –

“(vii) Non-profit organization” means any entity or organisation, constituted for religious or charitable purposes referred to in clause (15) of section 2 of the Income-tax Act, 1961 (43 of 1961), that is registered as a trust or a society under the Societies Registration Act, 1860 (21 of 1860) or any similar State legislation or a Company registered under the section 8 of the Companies Act, 2013 (18 of 2013);¹²

Conclusion

The above-mentioned modifications can smoothen the process of the detection of ML/TF activities, thereby helping towards combating the issue of money laundering and terrorist financing and facilitating AML/CFT Compliance.

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Amendment-to-Guidelines-on-AML-Standards-and-CFT-andObligations-of-Securities-Market-Intermediaries-under-the-PMLA-2002

1. Amendment to 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, dated 16 June 2023
2. Amendment to 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, dated 16 June 2023
3. Amendment to 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, dated 16 June 2023
4. Amendment to 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, dated 16 June 2023
5. Amendment to 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, dated 16 June 2023
6. Amendment to 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, dated 16 June 2023
7. Amendment to 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, dated 16 June 2023
8. Amendment to 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, dated 16 June 2023
9. Amendment to 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, dated 16 June 2023
10. Amendment to 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, dated 16 June 2023
11. Amendment to 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, dated 16 June 2023
12. Amendment to 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, dated 16 June 2023