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Regulatory Guidelines Applicable under Prevention of Money Laundering Act, 2002 (PMLA)

The Prevention of Money Laundering Act, 2002 (PMLA) was brought into force with effect from 1st July 2005. As per PMLA provisions every Investment Advisors shall have to adhere to client account opening procedures and maintain records of such transactions as prescribed by the PMLA and Rules notified there under. The Company under AML framework adopts a Client Due Diligence Process. Ensuring AML standard based on three categories, Client Acceptance, Client Identification and Monitoring/Reporting of Suspicious Transactions (MSTR). The suspicious transactions shall include large as well as cash transactions above a threshold limit as per applicable regulations and shall be monitored and reported

Compliance to below norms shall be followed in relation to PMLA-

(1) Client Acceptance Procedure
  • Services would not be provided in name other than the name for which KYC has been submitted i.e services would be provided only to actual beneficiary of services.
  • The clients would be classified into Low, Medium and High Risk based on risk profiling.
  • Services would not be provided if the company is unable to apply Client Due Diligence or KYC procedures.
  • The company would adopt risk based approach whereas the clients with High risk and clients falling under special category would be subjected to additional due diligence.
(2) Client identification Procedure
  • The KYC documents of the clients would have to be fetched from KRA only with no exceptions to be considered.
  • If any existing or potential client falls under the category of Politically Exposed Person, prior approval of TOP management is required before inception of services.
  • All the documents relating to KYC have to be retained for a minimum period of 5 years and for such further period as may be prescribed by various legislatures from time to time.
(3) Monitoring/Reporting of Suspicious Transactions (MSTR)

Ongoing monitoring of accounts is an essential element of an effective AML framework. A Suspicious Transaction is one that is inconsistent with a customer's known, legitimate activities or with the normal business. A satisfactory KYC procedure provides the foundation for recognizing unusual or suspicious transactions. Knowledge of the customer's normal or expected activities would enable the Company to recognize when a transaction or series of transactions are abnormal. Accounts categorized as high risk accounts shall be subject to intensified monitoring. Sufficient guidance/training shall be imparted to staff to enable them to recognize potentially suspicious transactions. The assessment of suspicious transaction shall be based on a reasonable evaluation of relevant factors, including having information on the client's business, financial history, background, behavior and threshold limits for transactions as stipulated by applicable regulations. As a part of ongoing monitoring, transactions of individuals/entities shall be screened against negative list, including those notified by regulators/statutory authorities.

The Company would endeavor to implement appropriate systems so as to-:

  • Establish Management Information Systems (MIS) to identify critical areas and issues which need to be addressed to prevent ML and to provide required information relating to suspicious transactions to the top management and regulatory authorities at pre-determined intervals.
  • To have proper record maintenance policies and procedures, which would ensure that, the documents required are available within reasonable time frame.
(4) Role of employees

The Human Resource Policy of the Company shall include the due diligence procedures from an AML perspective that need to be carried out before employing any personnel including temporary or outsourced manpower. Keeping in view the new regulatory guidelines, the due diligence procedure would also include name screening of prospective employees against the list of terrorists / individuals / entities provided by regulators

The role of employees in implementing any AML framework being critical, employees would be expected to carry out the stipulated procedures efficiently. Any inefficient or suspicious behavior of employees shall be dealt with suitably. The employees shall maintain strict confidentiality in regard to KYC, MSTR and other AML procedures.

If any activity is outsourced to any agency/individual, it would be ensured that they would adhere to the guidelines outlined in this Policy.

(5) Training

Adequate ongoing training programmes shall be conducted for all employees on the requirements laid down in this Policy document as well as the KYC/AML procedures. Specialized training programmes shall be undertaken to address the needs of:

  • Compliance functionaries and their staff.
  • The employees dealing with high ML risk products.
  • The employees with customer contacts or those authorized to settle cash or non cash financial transactions.

The AML training programmes shall address the requirements relating to the following:

  • AML regulatory requirements.
  • Possible risks of not adhering to the AML requirements.
  • Requirements for adequate KYC procedures.
  • Methods for recognition of suspicious transactions or suspicious behavior of a client.
(6) AML Operating Structure
  • Designated Director - The Designated Director shall supervise the implementation of the AML Policy framework. He would act as the guiding force for AML implementation
  • Compliance Group (CG) - Compliance Group would be responsible for:
    • Formulating and periodically reviewing the AML Policy in line with the applicable regulatory guidelines.
    • Ensuring that the regulatory guidelines are incorporated in the AML related procedures and implemented.
    • Instituting a risk-based AML training programmer for the employees.
  • Principal Officer (PO) - In order to have a focused attention to Financial Crime Prevention, a Principal Officer would be appointed. The activities of PO include establishing appropriate internal controls, procedures and systems in regard to Fraud Prevention, Anti Money Laundering (AML) etc.

    He has the executive responsibility for monitoring day-to-day implementation of the AML Policy and Procedures. The functions of the PO shall include

    • Liaising with the regulatory/enforcement authorities on AML matters. PO shall submit periodic reports to the Designated Director including the adequacy of the systems and controls of SBUs for managing ML risks and for recommending any changes or improvements, as necessary.
    • Participate in strategic planning meetings or comment on proposed plans specifically if the new strategy increases the ML risk exposure of the Company e.g. expansion into international markets.
    • Review all reports required to be submitted to regulatory/law enforcement authorities.
    • Reporting to the FIU-IND

      Cash Transaction Report - On a monthly basis before 15th of the succeeding month.

      Suspicious Transaction Report - within seven days from the date of arriving at a conclusion that any transaction, whether cash or non-cash, or a series of integrally connected are of suspicious nature. Monitoring of compliance and exceptional reporting. Providing inputs to employees/managers on issues related to ML risks. Collating and maintaining the AML records. Ensuring the validity and accuracy of the data used for AML analysis. Responsibility of escalating of unusual behavior and suspicious activity/transactions, to Designated Director.

  • Escalation Procedures - All employees shall escalate any identified suspicious activity or transaction to their managers immediately who shall intimate the PO as soon as possible but not later than one working day after establishing the reasonable grounds for suspicion. The PO in consideration with the Designated Director shall report to the FIU-IND all suspicious activities/transactions in accordance with the PMLA rules, within seven days from the date of arriving at such conclusion that any transaction, whether cash or non-cash, or a series of integrally connected are of suspicious nature.
(7) Record Keeping

The Company shall maintain appropriate documentation on their customer relationships and transactions to enable reconstruction of any transaction.

The records shall be maintained for a period of five years from the date of cessation of the transaction. Records shall be maintained in a manner, which facilitates its easy retrieval as and when required.

(8) Compliance
  • Internal Controls
    • The AML Policy adopts the following controls:
    • Appropriate organisation structure (definitions of duties and responsibilities, discretionary limits for approval and decision making procedures).
    • Adequate internal controls (segregation of various functions, cross-checking, dual control, double signatures, etc). These controls shall be supplemented by an effective audit function that independently evaluates the adequacy, operational effectiveness and efficiency of the control systems within the organisation.
    • Duties and responsibilities shall be explicitly allocated for ensuring that policies and procedures are managed effectively and that there is full commitment and compliance to an effective KYC programme in respect of both existing and prospective clients.
  • Audit / Monitoring

    The scope of internal audit of the Company shall include testing of compliance with the AML Policy and KYC/AML procedures. The checklist of items reviewed, including a summary of deficiencies and actions taken must be documented and submitted to the PO.

    The Company shall monitor all Large Transactions and Cash Transactions beyond the threshold limits as defined by the regulatory authorities.

  • Customer Education

    The Company shall educate the customers on the objectives of KYC/AML related programmers by way of preparation of specific literature/pamphlets, hosting relevant KYC/AML information on the website of the Company etc.

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