Sebi inspects brokers on money laundering, terror funding

This marks a significant jump from total 81 brokers and sub-brokers on whom such inspections were carried out during the previous fiscal 2011-12.

New Delhi: Stepping up its fight against money laundering and terror funding through capital markets, Sebi inspected more than 200 stock brokers and sub-brokers during the last fiscal to check any possible non-compliance.

This marks a significant jump from total 81 brokers and sub-brokers on whom such inspections were carried out during the previous fiscal 2011-12.

Without disclosing the names of the entities that were inspected, Sebi has said it carried out 162 stock brokers and 39 sub-brokers during 2012-13, up from 69 brokers and 12 sub- brokers during the previous year.

"The focus of the inspections included themes such as compliance of norms regarding Anti-money Laundering, settlement of accounts of clients on timely basis, segregation of clients and proprietary funds/securities, KYC norms, clearing operations, etc," Sebi said in its latest report to the Government of India for 2012-13.

Sebi said it has been taking steps to prevent money laundering and terrorist financing through the securities markets.

To further strengthen the existing framework and to tackle the risk presented by the misuse of complex legal structures, such as, companies, partnerships, trusts etc, in facilitating money laundering or financing of terrorism, Sebi has made it mandatory for market intermediaries to identify and verify the beneficial owner of funds.

"Money laundering is globally recognised as one of the largest threats posed to the financial system of a country. The fight against terrorist financing is another such emerging threat with grave consequences for both the political and economic standing of a jurisdiction.

"Rapid developments and greater integration of the financial markets together with improvements in technology and communication channels continue to pose serious challenges to the authorities and institutions dealing with anti-money laundering and combating financing of terrorism (AML and CFT)," Sebi said.

The Prevention of Money Laundering Act, 2002 (PMLA) was amended in December 2012 to make the legislative and administrative framework of the country more effective and capable of handling new evolving threats in the areas of money laundering and financing of terror.

Sebi said it has included the AML/CFT risks risks as part of its inspection of market intermediaries, such as stock brokers, depository participants and mutual funds.

The regulator said that it carried out 40 special purpose inspections of stock brokers to check their compliance with the AML/CFT framework. Further, 35 inspections of stock brokers and six depository participants focusing on compliance with KYC norms were carried out in 2012-13.

In addition to the special purpose inspections conducted by Sebi, compliance with AML/CFT norms are also verified by the stock exchanges and depositories (NSDL and CDSL) during their inspections of stock brokers and depository participants, and also at the time of half yearly internal audits by independent professionals.

Depository participants are also required to undergo concurrent audits with respect to their operations, which includes account opening/KYC/AML norms.

Sebi said that appropriate sanctions are applied where AML/CFT violations or discrepancies are observed. Further, the penalty structure of the stock exchanges has been recently reviewed and the penalties imposed for KYC and AML/CFT discrepancies and violations have been increased.

According to Sebi data, AML discrepancies were observed and action taken during the last fiscal in case of 62 members of NSE, 310 of BSE, 57 of CDSL and 34 of NSDL.

Out of these, advice was issued to 58 members of NSE, 308 of BSE, 57 of CDSL and 30 of NSDL, while fines were levied on four NSE members, 16 BSE members, one CDSL member and five from NSDL.

Sebi further said that it has consistently been in touch with the global bodies and other domestic regulators to keep regulatory framework for AML robust in the Indian markets.