SEBI asks stock exchanges, intermediaries to identify money laundering, terror financing risks
2 min read 16 Jun 2023, 07:53 PM ISTSEBI asked the exchanges and intermediaries to undertake risk assessments before launching or using such products, practices, services, and technologies
PremiumMarket regulator Securities Exchange Board of India (SEBI) on Friday asked the stock exchanges and market intermediaries to assess the development of new products and new business practices to identify the potential money laundering and terror financing risks. The development comes as the government amended the Prevention of Money Laundering (Maintenance of Records) Rules or PMLA rules in March this year.
In its updated guidelines on anti-money laundering standards and combating the financing of terrorism obligations of securities market intermediaries, SEBI asked the exchanges and intermediaries to undertake risk assessments before launching or using such products, practices, services, and technologies.
According to the guidelines provided by SEBI, it is mandated that intermediaries must register the information of their clients, specifically if the client is a non-profit organization, on the DARPAN portal of Niti Aayog. Furthermore, these intermediaries are required to keep records for a period of five years following the termination of the business relationship with the client or the closure of the account, whichever occurs later.
Using latest technological methods
To meet the sanctions requirements and implement the name screening effectively, the exchanges and intermediaries were asked to use the latest technological innovations in the area.
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If a registered intermediary has a reasonable suspicion that transactions associated with money laundering or terrorist financing are taking place and they believe that conducting the client due diligence process would alert the client, they are not required to proceed with the process. Instead, they should file a report on the suspicious transaction with FIU-IND (Financial Intelligence Unit-India), which is responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions.
Enhanced due diligence of politically exposed persons
Moreover, the SEBI also asked the intermediaries to undertake enhanced due diligence of politically exposed persons (PEP).
PEP are "individuals who have been entrusted with prominent public functions by a foreign country, including the heads of states or governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials".
The guidelines introduced additional measures, such as refining the definition of beneficial owners within the anti-money laundering law and requiring market intermediaries involved in reporting to gather information from their clients. Under the amendments, individuals or groups holding a minimum of 10% ownership of a 'reporting entity' client will now be categorized as beneficial owners. This marks a change from the previous ownership threshold of 25%.
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