In a bid to counter money laundering and terrorist financing in capital market, SEBI has asked intermediaries like brokers, sub-brokers and mutual fund distributors to carry out risk assessment of their clients.
As a part of this compliance, intermediaries will have to assess the country, nature and volume of transactions, payment methods used by clients, etc. Intermediaries have to identify whether the client is acting on behalf of a beneficial owner. This task can be outsourced to a third party, said SEBI.
The third party has to be supervised and should have measures in place for compliance with client due diligence (CDD) and record-keeping requirements in line with the obligations under the PML Act.
The regulator has clarified that intermediaries will be ultimately responsible for client due diligence (CDD).
Client Records
Client records of the identity of clients, beneficial owners as well as account files and business correspondence will now have to be kept for five years after the business relationship between a client and intermediary has ended instead of ten years earlier.
Registered intermediaries will have to preserve the records of information related to transactions which are reported to the Financial Intelligence Unit India (FIU-IND) for a period of five years from the date of the transaction between the client and the intermediary.
FIU-IND can penalize the Designated Director for failure of the intermediary to comply with any of its anti-money laundering/combating financing terrorism (AML/CFT) obligations.
To monitor compliance with these rules, intermediaries will have to appoint a Designated Director. The Designated Director can be Managing Director or a Whole-time Director in case of a company, managing partner in case of partnership firm, proprietor in case of a proprietorship concern, managing trustee in case of a trust.
In case of mutual funds, compliance of these rules have to be monitored by the Boards of the Asset Management Companies and the Trustees and in case of other intermediaries, by their Board of Directors.
