CIRCULAR
SEBI/HO/MIRSD/SEC-FATF/P/CIR/2023/0170
October 13, 2023
To,
1. All Intermediaries registered with the Securities and Exchange Board of
India under Section 12 of the Securities and Exchange Board of India Act,
1992
2. Stock Exchanges
Dear Sir/Madam,
Subject: Amendment to the Guidelines on Anti-Money Laundering (AML)
Standards and Combating the Financing of Terrorism (CFT) /Obligations of
Securities Market Intermediaries under the Prevention of Money-laundering Act,
2002 and Rules framed there under
1. Please refer to the Master Circular reference number SEBI/HO/MIRSD/MIRSD-
SEC-5/P/CIR/2023/022 dated February 03, 2023 and amendments thereto dated
June 16, 2023 on the captioned subject issued by the Securities and Exchange
Board of India (SEBI).
2. The Government of India has notified Prevention of Money-laundering
(Maintenance of Records) (Second Amendment) Rules, 2023, which is published
in the Official Gazette on September 4, 2023 (Notification G.S.R. 652(E)). The said
amendments came into force on the date of its publication i.e. with effect from
September 4, 2023.
3. In view of the afore-referred amendments to the Prevention of Money-laundering
(Maintenance of Records) Rules, 2005 and to further enhance the effectiveness of
the AML/CFT framework, certain provisions of the aforesaid Master Circular shall
stand modified as mentioned below: -
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3.1. In Paragraph 6, the following paragraph shall be inserted at the end,
namely:-
If the host country does not permit the proper implementation of AML/CFT
measures consistent with the home country requirements, financial groups
shall be required to apply appropriate additional measures to manage the
ML/TF risks, and inform SEBI.
3.2. After paragraph 7A and before paragraph 8, the following paragraph “7B”
shall be inserted, namely: -
7B. Financial groups shall be required to implement group wide programmes
for dealing with ML/TF, which shall be applicable, and appropriate to, all
branches and majority owned subsidiaries of the financial group as under:
a. policies and procedures for sharing information required for the purposes
of CDD and ML/TF risk management;
b. the provision, at group level compliance, audit, and/or AML/CFT
functions, of customer, account, and transaction information from
branches and subsidiaries when necessary for AML/CFT purposes. This
shall include information and analysis of transactions or activities which
appear unusual (if such analysis was done);
similar provisions for receipt of such information by branches and
subsidiaries from these group level functions when relevant and
appropriate to risk management; and
c. adequate safeguards on the confidentiality and use of information
exchanged, including safeguards to prevent tipping-off.
3.3. In Paragraph 11, after sub-paragraph (ii), the following proviso shall be
inserted, namely:-
Provided that in case of a Trust, the reporting entity shall ensure that trustees
disclose their status at the time of commencement of an account based
relationship.
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3.4. In Paragraph 11, sub-paragraph (iii) shall be substituted with the following,
namely:-
Identifying beneficial ownership and control, i.e. determine which
individual(s) ultimately own(s) or control(s) the client and/or the person on
whose behalf a transaction is being conducted. The beneficial owner shall
be determined as under-
a) where the client is a company, the beneficial owner is the natural
person(s), who, whether acting alone or together, or through one or
more juridical person, has a controlling ownership interest or who
exercises control through other means.
Explanation:- For the purpose of this sub-clause:-
i. "Controlling ownership interest" means ownership of or
entitlement to more than ten per cent of shares or capital or
profits of the company;
ii. "Control" shall include the right to appoint majority of the
directors or to control the management or policy decisions
including by virtue of their shareholding or management rights
or shareholders agreements or voting agreements;
b) where the client is a partnership firm, the beneficial owner is the
natural person(s) who, whether acting alone or together, or through
one or more juridical person, has ownership of/ entitlement to more
than ten percent of capital or profits of the partnership or who
exercises control through other means.
Explanation:- For the purpose of this clause:-
“Control” shall include the right to control the management or policy
decision;
c) where the client is an unincorporated association or body of
individuals, the beneficial owner is the natural person(s), who,
whether acting alone or together, or through one or more juridical
person, has ownership of or entitlement to more than fifteen per cent.
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of the property or capital or profits of such association or body of
individuals;
d) where no natural person is identified under (a) or (b) or (c) above, the
beneficial owner is the relevant natural person who holds the position
of senior managing official;
e) Where the client is a trust, the identification of beneficial owner(s)
shall include identification of the author of the trust, the trustee, the
beneficiaries with ten per cent or more interest in the trust and any
other natural person exercising ultimate effective control over the trust
through a chain of control or ownership; and
f) where the client or the owner of the controlling interest is an entity
listed on a stock exchange in India, or it is an entity resident in
jurisdictions notified by the Central Government and listed on stock
exchanges in such jurisdictions notified by the Central Government,
or it is a subsidiary of such listed entities, it is not necessary to identify
and verify the identity of any shareholder or beneficial owner of such
entities.
g) Applicability for foreign investors: Registered intermediaries
dealing with foreign investors’ may be guided by SEBI Master
Circular SEBI/HO/AFD-2/CIR/P/2022/175 dated December 19,2022
and amendments thereto, if any, for the purpose of identification of
beneficial ownership of the client;
h) The Stock Exchanges and Depositories shall monitor the compliance
of the aforementioned provision on identification of beneficial
ownership through half yearly internal audits. In case of mutual funds,
compliance of the same shall be monitored by the Boards of the Asset
Management Companies and the Trustees and in case of other
registered intermediaries, by their Board of Directors.
3.5. In paragraph 11, sub-paragraph (viii) shall be substituted with the following,
namely:-
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Registered intermediaries shall periodically update all documents, data or
information of all clients and beneficial owners collected under the CDD
process such that the information or data collected under client due diligence
is kept up-to-date and relevant, particularly for high risk clients.
3.6. After paragraph 11 and before paragraph 12, the following paragraph shall
be inserted, namely:-
“11A. No transaction or account-based relationship shall be undertaken
without following the CDD procedure.”
3.7. In paragraph 12, in sub-paragraph (iii), clause (e) shall be substituted with
the following, namely:-
Politically Exposed Persons” (PEPs). PEP shall have the same meaning as
given in clause (db) of sub-rule (1) of rule 2 of the Prevention of Money-
Laundering (Maintenance of Records) Rules, 2005. The additional norms
applicable to PEP as contained in the subsequent paragraph 14 of the
master circular shall also be applied to the accounts of the family members
or close relatives / associates of PEPs;
3.8. In paragraph 12, in sub-paragraph (iii), clause (f), the following paragraph
shall be inserted at the end, namely:-
The intermediary shall specifically apply EDD measures, proportionate to the
risks, to business relationships and transactions with natural and legal
persons (including financial institutions) form countries for which this is called
for by the FATF.
3.9. After paragraph 41 and before paragraph 42, the following paragraphs shall
be inserted, namely: -
41A. Where the registered entity does not have records of the identity of its
existing clients, it shall obtain the records forthwith, failing which the
registered intermediary shall close the account of the clients after giving due
notice to the client.
Explanation: For this purpose, the expression “records of the identity of
clients” shall include updated records of the identification date, account files
and business correspondence and result of any analysis undertaken under
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rules 3 and 9 of the Prevention of Money-laundering (Maintenance of
Records) Rules, 2005.
3.10. In paragraph 60, the following paragraph shall be inserted at the end,
namely:-
Confidentiality requirement does not inhibit information sharing among
entities in the group.
3.11. Paragraph 61 shall be substituted with the following, namely: -
Appointment of a Principal Officer: To ensure that the registered
intermediaries properly discharge their legal obligations to report suspicious
transactions to the authorities, the Principal Officer would act as a central
reference point in facilitating onward reporting of suspicious transactions and
for playing an active role in the identification and assessment of potentially
suspicious transactions and shall have access to and be able to report to
senior management at the next reporting level or the Board of Directors.
Names, designation and addresses (including email addresses) of ‘Principal
Officer’ including any changes therein shall also be intimated to the Office of
the Director-FIU-IND. In terms of Rule 2 (f) of the PML Rules, the definition
of a Principal Officer reads as under:
Principal Officer means an officer designated by a registered intermediary;
Provided that such officer shall be an officer at the management level.
4. This circular is being issued with the approval of the Competent Authority
5. This Circular is available at www.sebi.gov.in under the link “Legal Circulars”.
Yours faithfully,
Sapna Sinha
Deputy General Manager
Email id: sapnas@sebi.gov.in
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