New Delhi: Regulator SEBI is finalising new Anti-Money Laundering guidelines covering entities such as brokers and mutual funds to put in place stronger checks against possible cleansing of funds through capital markets.
The guidelines, expected to be ready within a few weeks, will replace SEBI's existing AML/CFT (Anti Money Laundering and Combating the Financing of Terrorism) standards, which first came into effect about 10 years ago and saw the last major amendments in late 2010, a senior official said.
While SEBI is of the view that a strong defence mechanism already exists in the Indian capital market regulatory system against any possible money laundering or terror financing activities, a review has become necessary to consolidate the various initiatives undertaken by it and the government over the years on this front, he added.
Besides, certain changes and additional safeguards might be necessary to tackle the new challenges thrown forward by the technological and market advances and to harmonise the guidelines with new standards set by global bodies like FATF (Financial Action Task Force).
SEBI may also consult the practices followed by its peers in some other countries to understand the best regulatory framework for AML/CFT regulations.
The SEBI guidelines require all market intermediaries, including brokers, MFs, merchant bankers, depositories, depository participants, portfolio managers and investment advisors, to adhere to specified client dealing procedures and maintain records for regulatory or investigative references.
The market entities are also required to seek certain specific disclosures from their clients to address the concerns of money laundering and suspicious transactions.
Some steps taken to check money laundering activities in the capital market include a strict KYC (Know Your Client) regime, mandatory requirement of PAN (Permanent Account Number) and in-person verification of clients.
The existing SEBI guidelines in this regard are mainly based on the PMLA Act of 2002 and the further amendments to it in 2005 and again in 2009.
The review will also take into account the new FATF standards on anti-money laundering measures. FATF is the global standard-setter in the fight against money laundering, and the financing of terrorism.
Over the past 20 years, FATF has been developing compliance mechanisms to help the countries ensure compliance with its standards and it would begin a new round of global evaluation and monitoring process in 2014.
While the data for the latest fiscal is not available, 35 stock brokers had come under SEBI's scanner in the 2011-12 fiscal for possible lapses in controls related to money laundering and terror financing.
Besides, stock exchanges and depositories had taken action against more than 300 market entities for violations and discrepancies related to AML/CFT regulations that year.
The market entities can face penal actions if they do not comply to prescribed KYC rules and there are lapses in their due diligence procedures and their compliance to other provisions of AML and CFT related regulations.
First Published: Sunday, June 16, 2013, 14:12