SEBI Master Circular on Anti Money Laundering (AML and Combating Financing of Terrorism (CFT)

SEBI on December 19th, 2008 has come out with a consolidated SEBI Master Circular on Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT). SEBI states that compliance with these standards by all intermediaries and the country has become imperative for international financial relations.

History

Anti Money Laundering laws in India were a result of the lobbying done some Bankers in India. As some of these Banks approached regulators of foreign jurisdictions seeking permission to open shops, one of the reasons cited by regulators to reject their applications was the absence of anti money laundering laws in India. Later, the Prevention of Money Laundering Act, 2002 (PMLA) was brought into force with effect from 1st July 2005. Necessary Notifications / Rules under the said Act were published in the Gazette of India on July 01, 2005. Subsequently, SEBI issued necessary guidelines vide circular no. ISD/CIR/RR/AML/1/06 dated January 18, 2006 to all securities market intermediaries as registered under Section 12 of the SEBI Act, 1992. These guidelines were issued in the context of the recommendations made by the Financial Action Task Force (FATF) on anti-money laundering standards.

Highlights of the Circular

1. Registered intermediary should establish appropriate policies and procedures for the prevention of money laundering and terrorist financing and should ensure their effectiveness and compliance with all relevant legal and regulatory requirements.
2. Such procedures should include inter alia, the following three specific parameters which are related to the overall ‘Client Due Diligence Process’. These include (1) Policy for acceptance of clients, (2) Procedure for identifying the clients and (3) Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR).
3. Registered intermediaries should adopt an enhanced customer due diligence process for higher risk categories of customers. Conversely, a simplified customer due diligence process may be adopted for lower risk categories of customers.
4. Registered intermediaries should ensure compliance with the record keeping requirements contained in various regulations.
5. Intermediaries are required to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND).

A copy of the Circular is available here.