This Policy has been framed in order to comply with the applicable Anti Money Laundering (AML) Standards/ Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed there under.
The Prevention of Money Laundering Act, 2002 (PMLA) was brought into force with effect from 1st July, 2005. As per PMLA, every banking company, financial institution (which includes chit fund company, a cooperative bank, a housing finance institution and a non-banking financial company) and intermediary (which includes a stockbroker, sub-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992) shall have to maintain a record of all the transactions; the nature and value of which has been prescribed in the Rules notified under the PMLA.
For the purpose of PMLA, transactions include:
For the purpose of suspicious transactions reporting, apart from ‘transactions integrally connected’, ‘transactions remotely connected or related’ need to be considered.
“Suspicious transactions” means a transaction whether or not made in cash which to a person acting in good faith –
Pursuant to the recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering standards, The Securities and Exchange Board of India, has from time to time issued circulars directing Intermediaries to adopt Strict Customer Due Diligence practices in order to prevent Money Laundering.
Maximus Securities Ltd (MSL) being an intermediary in the securities market registered with the Securities and Exchange Board of India is required to adopt and implement a policy for Prevention of Money Laundering as laid down hereunder pursuant to the Prevention of Money Laundering Act, 2005 and the Rules, Regulations and Notifications thereunder as a compliance with Regulatory Requirement.
Hence the objective of the policy is to –
Money Laundering can be defined as engaging in financial transactions that involve income derived from criminal activity, transactions designed to conceal the true origin of criminally derived proceeds and appears to have been received through legitimate sources/origins
In simple terms money laundering is most often described as the “turning of dirty or black money into clean or white money”. If undertaken successfully, money laundering allows criminals to legitimize "dirty" money by mingling it with "clean" money, ultimately providing a legitimate cover for the source of their income.
Section 3 of the PMLA Act defines money laundering in following words:
“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering”.
Prevention of Money Laundering Act, 2002 (PMLA 2002) forms the core of the legal framework put in place by India to combat money laundering. PMLA 2002 and the Rules notified there under came into force with effect from July 1, 2005.
The PMLA 2002 and Rules notified there under impose an obligation on intermediaries (including Depository participants, stock brokers and subbrokers) to verify identity of clients, maintain records and furnish information to the Financial Intelligence Unit (FIU) - INDIA
The Government of India set up Financial Intelligence Unit-India (FIU-IND) on November 18, 2004 as an independent body to report directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
FIU-IND has been established as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions. FIU-IND is also responsible for coordinating and stretching efforts of national and international intelligence and enforcement agencies in pursuing the global efforts against money laundering and related crimes.
Maximus Securities Ltd (MSL) has resolved that it would, as an internal policy, take adequate measures to prevent money laundering and shall put in place a frame-work to report cash and suspicious transactions to FIU as per the guidelines of PMLA Rules, 2002.
To be in compliance with these obligations, MSL is fully committed to establish appropriate policies and procedures for the prevention of Money Laundering and Terrorist Financing and ensuring their effectiveness and compliance with all relevant legal and regulatory requirements.
These policies and procedures (with amendments from time to time) apply to all employees at all levels (including Directors, Authorised Persons etc.) of MSL and is to be read in conjunction with the existing guidelines. For any clarifications on this subject, at any point of time, the employees should contact the Compliance Officer of the company, who is also designated as the Principal Officer under the Act.
The purpose of this document is to guide all the employees (at all levels) of MSL and employees of its associates on the steps that they are required to take and implement to prevent and identify any money laundering or terrorist financing activities. It shall be the responsibility of each of the concerned employees that they should be able to satisfy themselves that the measures taken by them are adequate, appropriate and follow the spirit of these measures and the requirements as enshrined in the “Prevention of Money Laundering Act, 2002”.
Some of these suggested measures may not be applicable to every circumstance or to each department, Branch / Sub-broker. However, each entity should consider carefully the specific nature of its business, type of customer and transaction to satisfy itself that the measures taken by the employees are adequate and appropriate to follow the spirit of these guidelines.
The Company shall designate the Compliance Officer of MSL as the Principal Officer who shall 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.
Illustrative duties of Principal Officer will be as follows:
The Company shall nominate the Whole-time Director who oversees the operations of the Company including implementation of Prevention of Money Laundering Rules, as the Designated Director of the Company under the Prevention of Money laundering Act, 2002 and Rules framed there under who shall be responsible for ensuring overall compliance with the obligations imposed under chapter IV of the Act and the Rules. SSL shall communicate the details of the Designated Director, such as, name, designation and address to the Office of the Director, FIU-IND.
The Customer Due Diligence Process includes three specific parameters:
In-person verification: In person verification (the “IPV”) shall be mandatory for all clients. Accounts shall be opened only for those persons whose inperson verification has been done as per the SEBI/Stock Exchange/Depository or other regulations in this regard. The client should visit the office/ branch of MSL or the authorised official may visit the client at the residence/office to complete the in-per verification procedures.
KYC Procedures: Accept only clients in respect of whom complete KYC procedures have been completed. Obtain complete information from the client. It should be ensured that the initial forms taken by the clients are filled in completely. All photocopies submitted by the client are checked against original documents without any exception. Ensure that the ‘Know Your Client’ guidelines are followed without any exception. All supporting documents as specified by Securities and Exchange Board of India (SEBI) and Exchanges are obtained and verified.
Debarred Clients: Do not accept clients with identity matching persons known to have criminal background: Check whether the client’s identify matches with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement/regulatory agency worldwide. Details of such clients can be checked on below link:
http://www.un.org/sc/committees/1267/aq_sanctions_list.shtmlBefore opening of clients’ accounts, check should be done to verify whether the client’s name matches with names in any of the following lists: SEBI Debarred List
We should be careful while accepting clients of special category like NRIs, HNIs, Trust, Charities, NGOs, Politically Exposed Persons (PEP), persons of foreign origin, companies having closed shareholding/ownership, companies dealing in foreign currency, shell companies, overseas entities, clients in high risk countries, non-face to face clients, clients with dubious background. Current/Former Head of State, Current/Former senior high-profile politician, Companies offering foreign exchange, etc.) or clients from highrisk countries (like Libya, Pakistan, Afghanistan, etc.) or clients belonging to countries where corruption/fraud level is high (like Nigeria, Burma, etc). Scrutinize minutely the records / documents pertaining to clients belonging to aforesaid category.
Senior management approval would be obtained for establishing business relationships with PEPs. Where a client has been accepted and the client or beneficial owner is subsequently found to be, or subsequently becomes a PEP, MSL shall obtain approval from Director to continue the business relationship.
For nonindividual customers as part of the due diligence measures sufficient information must be obtained in order to identify persons who beneficially own or control securities account. Whenever it is apparent that the securities acquired or maintained through an account are beneficially owned by a party other than the client, that party should be identified and verified using client identification and verification procedures as early as possible. The beneficial owner is the natural person or persons who ultimately own, control, or influence a client and/or person on whose behalf a transaction(s) is/are being conducted. It includes persons who exercise ultimate effective control over a legal person or arrangement.
Ensure that no account is being opened in a fictitious / benami name or on an anonymous basis.
Client’s account should be opened only on receipt of mandatory information along with authentic supporting documents as per the regulatory guidelines. Do not open the accounts where the client refuses to provide information/documents and we should have sufficient reason to reject the client towards this reluctance.
Objective: To have a mechanism in place to establish identity of the client along with firm proof of address to prevent opening of any account which is fictitious / benami / anonymous in nature.
Documents which can be relied upon:
a. In case of individuals, one copy of the following documents have to be obtained
b. In case of corporates, one certified copy of the following documents must be obtained:
c. In case of partnership firm one certified copy of the following must be obtained:
d. In case of a Trust, one certified copy of the following must be obtained:
e. In case of unincorporated association or a body of individuals, one certified copy of the following must be obtained:
f. In case of an NRI account - Repatriable/non-repatriable, the following documents are required:
6. GENERAL GUIDELINES
7. FOR ALL EXISTING CLIENTS
On an on-going basis, the branches should ensure that the details given in the KYC, by the client, matches with the current details of the client. If required, we can seek additional documents/information from the client to verify the financial/general status of the client. In cases where:
Branches/operations team should immediately bring the same to the notice of the Business Head. The Business Head will, in turn, discuss the same with the Principal Officer to decide on the necessary course of action, including reporting to FIU, New Delhi.
8.Risk Profiling Of The Client
We should accept the clients based on the risk they are likely to pose. The aim is to identify clients who are likely to pose a higher than average risk of money laundering or terrorist financing. For this purpose, we need to classify the clients as Low risk, medium risk and high-risk clients. By classifying the clients, we will be in a better position to apply appropriate customer due diligence process. That is, for high risk client we have to apply higher degree of due diligence. The factors of risk perception depend on client’s location, nature of business activity, turnover, nature of transaction, manner of payment etc.
In order to achieve this objective, all clients should be classified in the following category :
Category A clients are those pose low or nil risk. They are good corporate/HNIs who have a respectable social and financial standing. These are the clients who make payment on time and take delivery of shares.
Category B clients are those who are intra-day clients or speculative clients. These are the clients who maintain running account with MSL.
Category C clients are those who have defaulted in the past, have suspicious background, do not have any financial status, etc.
We have to be careful while monitoring the transactions of B and C category clients. Apart from this we need to exercise extra caution while monitoring the transactions of NRI/NRE/PIO and foreign clients, especially when the payment is being made in foreign currency.
The primary objective of this policy is to ensure that we are aware as to who is the ultimate beneficiary of the transaction and that the transactions executed, through the mandate holder are bonafide.
It is possible that some of the individual clients might appoint a mandate holder. Normally the trading account is opened in the name of various family members and one the family member will hold the mandate. Also, in case of some NRI clients who are based abroad, there may be on a PoA/Mandate in favour of a person residing in India
Whenever any account is operated by a mandate holder, find out the relationship of the mandate holder with the client, followed by establishing the identity of the mandate holders by obtaining proof of identity and address.
Do not accept any payment from the account of mandate holder in favour of the client. All the payments have to be received from the client’s bank account only for which the PoA holder may or may not have the mandate to operate the bank account. Similarly, pay-out cheques should be issued only in the name of the client and not in the name of the mandate holder.
In case there is suspicion on the relationship between the mandate holder and the actual client or in case behaviour of the mandate holder is suspicious, do take necessary advice from the Business Head.
Relationship Manager/ Dealer/ Branch Manager/ Branch Coordinator/ Business Head
The RM/ Dealer/ BM/ Coordinator should meet the client in person at least once before opening the account at the address given by the client. In the process he may reasonably verify the living standards, source of income, financial status, etc. of the client and ensure that the details mentioned in the CRF (Client Registration Form) matches with the actual status.
If the client is a ‘walk-in client’, then the concerned branch official should make independent verification about the background, identity and financial worthiness of the client.
All mandatory proofs of identity, address and financial status of the client must be collected as prescribed by the regulatory authorities, from time to time. The proofs so collected should be verified with the originals. If the prospective client is refusing to provide any information do not forward his/ her account opening form to HO.
IN PERSON VERIFICATION can do by SUB BROKER for SUB BROKER Clients.
The Business Head has to be completely satisfied about the background, genuineness and financial status of the client before recommending for opening the account. If required, the Business Head may seek additional information/documents from the client.
If the account is to be handled by a PoA /mandate holder, then find out what is the relationship between the client and the PoA/Mandate holder, establish the identity and background of the client and the PoA/Mandate holder (by obtaining the required documents) and ensure that the PoA/Mandate Holder has the proper authorization.
In case of a corporate account, the branch officials should ensure that the authorized person has got the required mandate by way of Board Resolution. Also, the identity and background of the authorized person has to be established by obtaining the required documents.
Foreign clients can deal in Indian market only to sell the shares allotted through ESOP or buy/sell as a ‘foreign direct investment’. We cannot deal for foreign clients under any other circumstances.
Please consult the Departmental Head before dealing with any NRE, NRO, PIO or foreign clients.
Risk Management Team (RMT) gives exposure to clients based on margin available in the system and clean exposure to selected clients based on recommendations of the Business Managers. It is also the duty of RMT to validate such exposures with the financial details provided by the client in KYC forms. Where there is a trading activity of the client, which is not commensurate with the financial details declared by the client, it should be analysed and referred to the Principal Officer with reasons of suspicion.
Maximus Securities Ltd shall carry out risk assessment to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk with respect to:
Undertake a periodic analysis of the trades executed by NRI/Foreign clients/institutional clients. It should be supplemented by analysis of the payment patterns, trading patterns, etc.
With respect to the institutions, analyze all the cancelled trades and DVP trades to see whether the institutional code is being misused. In such cases, also ascertain who the ultimate beneficiary of the trades.
Undertake a periodic analysis of all the payments received from client by way ofDD/Pay order. This will help in ascertaining whether any client’s DD/ Pay Orders have been purchased against “Cash” or might whether any client is making third party payments. The third party payments can relate to employees also.
Currently, MSL does not undertake in pro-trade. Majority of the trades reflected in the pro- account are error trades. A monthly audit of the trades reflected in the pro account has to be done to ascertain the nature of such trade.
Need to analyze the trades undertaken in the employees or sub broker’s own trading account. It is possible that the employees/sub brokers might be accepting cash from the clients and execute the trades in their account. Similarly, it is possible that the profit on trades of the clients being shifted to the employees/sub broker’s accounts.
A monthly analysis of changes in the client details has to be undertaken to identify the clients who are making frequent changes whether the client trying to hide or confuse his identity.
Monitoring of Proprietary Transactions of Channel Partner:
This Policy will be reviewed regularly by the Internal Audit Head for its effectiveness since the person reviewing the policy should be different from the person framing the policy.
All are requested not to accept cash from the clients whether against obligations or as margin for purchase of securities or otherwise. All payments shall be received from the clients strictly by account payee crossed cheques drawn in favour of Maximus Securities Ltd. The same is also required as per SEBI circular no. SMD/ED/IR/3/23321 dated November 18, 1993 and SEBI/MRD/SE/Cir-33/2003/27/08 dated August 27, 2003.
In case account payee cheques have been received from a bank account other than that captured in records the same can be accepted after ascertaining that the client is the first holder of the account. Relevant copies of the supporting documents should be sent to HO and details of such accounts should be captured in records.
Only in exceptional cases, bank draft/pay-order may be accepted from the client provided identity of remitter/purchaser written on the draft/pay-order matches with that of client else obtain a certificate from the issuing bank to verify the same. All cash transactions are required to be reported on monthly basis to Rajendra Desai (Manager), by each Sub-broker by 7th of the following month.
All are requested to analyze and furnish details of suspicious transactions, whether or not made in cash. It should be ensured that there is no undue delay in analysis and arriving at a conclusion.
Suspicious transaction means a transaction whether or not made in cash, which to a person acting in good faith-
Gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
Appears to be made in circumstance of unusual or unjustified complexity; or
Appears to have no economic rationale or bona fide purpose
In terms of the PMLA rules, brokers and sub-brokers are required to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU- IND) 6th Floor, Hotel Samarat, Chanakyapuri, New Delhi - 110021 as per the schedule given below:
| Report | Description | Due Date |
|---|---|---|
| CTR | All cash transactions of the value
of more than Rs.10 Lakhs or its
equivalent in foreign currency
All series of cash transactions integrally connected to each other which have been valued below Rs.10 Lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month |
15th day of the succeeding month 15th day of the succeeding month |
| CCR |
All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions* |
Not later than seven working days from the date of occurrence of such transaction* |
| STR | All suspicious transactions whether or not made in cash | Not later than seven working days on being satisfied that the transaction is suspicious* |
| NTR | Non-Profit Organization Transaction Report | Not later than seven working days on being satisfied that the transaction is suspicious* |
In view of the same, Principal Officer are required to collect information from the Branches/Departments/Sub-brokers under their control/ jurisdiction and submit report on Cash transactions on monthly basis, to Mr Rajendra Desai , Manager by the 10th day of the following month and suspicious transactions to the Principle Officer within three working days of establishment of such transaction to enable the Principal Officer to report the same to the Director, Financial Intelligence Unit-India (FIUIND) within the stipulated time.
"Registered intermediaries shall maintain and preserve the record of documents evidencing the identity of its clients and beneficial owners (e.g., copies or records of official identification documents like passports, identity cards, driving licenses or similar documents) as well as account files and business correspondence for a period of five years after the business relationship between a client and intermediary has ended or the account has been closed, whichever is later."
words "preserved for ten years" shall be substituted with "maintained and preserved for a period of five years from the date of transaction between the client and intermediary".
Records of information reported to the Director, Financial Intelligence Unit - India (FIU-IND): Registered intermediaries shall maintain and preserve the record of information related to transactions, whether attempted or executed, which are reported to the Director, FIU-IND, as required under Rules 7 & 8 of the PML Rules, for a period of five years from the date of the transaction between the client and the intermediary.
A public database search of the individual (in case of individual clients) and beneficial owners/ senior management in case of non-individual clients shall be conducted at the following places:
The search shall ensure that identity of the client does not match with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency worldwide.
If any alerts are generated during the search, then matter shall be escalated to Principal Officer to take a decision whether to open the account or not. Income and networth details shall be taken for all clients on a self declaration basis. In case of clients trading on derivatives, documentary evidence of financial details as prescribed under SEBI Circular MIRSD/SE/Cir-19/2009 dated 03-Dec-2009 as modified/ updated/ reissued shall be taken.
Where the above details are not available, the account shall not be opened
All clients, at the time of onboarding shall be classified in low, medium and high-risk categories, based on the following parameters;
Meets all four parameters - High Risk Meets three parameters - Medium Risk Meets two or less parameters - Low risk
Where an individual client has given authority to another person who is not a relative to trade on its behalf, the matter shall be escalated to Principal Officer.
Where a non-individual client has given authority to another person who is not an employee/ office bearer to trade on its behalf, the matter shall be escalated to Principal Officer
In case the authority is given to a SEBI Registered Intermediary like Portfolio Manager or Investment Advisor, the SEBI registration details of such intermediary shall be kept on record.