Anti-Money Laundering Policy
Preamble:
The Government of India has serious concerns over money laundering activities which are not only illegal but anti-national as well. The prevention of Money Laundering Act, 2002 (PMLA) was enacted in 2003 and brought in to force with effect from 1st July 2005 to prevent money laundering and to provide for attachment, seizure and confiscation of property obtained or derived, directly or indirectly, from or involved in money laundering and for matters connected therewith or incidental thereto . Necessary Notifications/Rules under the said Act were published in the Gazette of India on July 01, 2005. As a market participant, it is evident that strict and vigilant tracking of all transactions of suspicious nature required.
Pursuant to the recommendations made the Financial Action Task Force on anti-money laundering standards, SEBI has issued a master circular No. SEBI/HO/MIRSD/DOS3/CIR/P/2018/104, dated June 04, 2018 on Guidelines on Anti Money laundering (ML)/ combating the Financing of Terrorism (CFT) in line with the FATF recommendations and PMLA Act, 2002. As per the Guidelines on Anti Money Laundering standards notified by SEBI, All registered intermediaries have been advised to ensure that proper policy frameworks are put in place. The objective is to ensure that we identify and discourage any money laundering or terrorist financing activities and that the measures taken by us are adequate enough to follow the spirit of the Act and guidelines
As per the provisions of the 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 stock-broker, 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 adhere to client account opening procedures and maintain records of such transactions as prescribed by the PMLA and Rules notified there under. 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 –
STOCK BROKER had undertaken a comprehensive review of its AML framework and laid down an Anti Money Laundering Policy in 2006. This policy shall be reviewed whenever any new updation is necessitated as per Central Government/SEBI/Exchange/Depository circulars or guidelines. The review of the policy should be done by the official other than the person who has framed the policy. The basic purpose of this AML Policy is to establish a system for “Client Due Diligence Process” for STOCK BROKER to participate in the international efforts against ML and to duly comply with the detailed guidelines as described under above said circular of SEBI and other legal provisions as well as to ensure that STOCK BROKER is not used as a vehicle for ML. The AML framework of the STOCK BROKER would meet the extant regulatory requirements.
It is important that STOCK BROKER ’s management views “money-laundering prevention” and “knowing your customer” as part of the risk management strategies and not simply as standalone requirements that are being imposed by legislation/regulators’.
Hence the objective of the policy is to –
Money laundering is the criminal practice of putting dirty money through a series of transactions, so that the funds are cleaned to look like proceeds from legal activities. It is driven by criminal activities and conceals the true source, ownership, or use of funds. 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 Prevention of Money Laundering (PML) Act, 2002 has defined the Offence of money laundering” as under:
“Whosever directly or indirectly attempts to indulge or knowingly assists or knowingly is 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”.
For the purpose of this document, the term “money laundering‟ would also covers financial transactions where the end use of funds goes for terrorist financing irrespective of the source of thefunds.
Section 12 of PML Act, 2002 places certain obligations on every Financial Institution/Intermediary/ banking company which include:
Money laundering activities expose the Intermediary/Financial Institution to various risks such as:
ISF has undertaken a comprehensive AML framework and laid down an Anti-Money Laundering Policy in 2006 which is reviewed from time to time. The basic purpose of this AML policy is to established a system for “client due diligence process” for ISF to participate in the international efforts against ML & TF and to duly comply with the detailed guidelines as described under above said circular of the SEBI and other legal provisions as well as to ensure that ISF is not used as a vehicle for ML & TF. The AML framework of the ISF would meet the extant regulatory requirements.
This AML policy establishes the standards of AML compliance and is applicable to all activities of the ISF and its branches. Objective of this policy:
The Company has designated Mr. Nakul Khemka, Whole Time Director of ISF, as the Principal Officer for due compliance of anti-money laundering policies. He will be responsible for implementation of internal controls & procedures for identifying and reporting any suspicious transaction or activity to the FIU–IND.
The company has provided the FIU with contact information of the principal officer and will promptly notify FIU of any changes in this information.
Mr. Sunil Khemka, Director of the company has been appointed as a designated director to ensure overall compliance with the obligations imposed under chapter IV of the Act and Rules.
The “Know your Client‟ (KYC) policy clearly spell out the client identification procedure to be carried out at different stages i.e. while establishing the intermediary – client relationship, while carrying out transactions for the client or when the intermediary has doubts regarding the veracity or the adequacy of previously obtained client identification data.
The client must be identified by the intermediary by using reliable sources including documents / information. The intermediary should obtain adequate information to satisfactorily establish the identity of each new client and the purpose of the intended nature of the relationship.
The information should be adequate enough to satisfy competent authorities (regulatory/ enforcement authorities) in future that due diligence was observed by the intermediary in compliance with the Guidelines. Each original document should be seen prior to acceptance of a copy.
In case it is suspected that the client has provided non genuine information and in case of willing non-cooperation by prospective client to provide satisfactory evidence of identity, account opening process of prospective client should be stopped.
Note: Apart from the above, we must follow our Customer Acceptance Procedure & Customer Identification Requirements – Indicative Guidelines as given herein under Annexure I, II &III
Where the client is a person other than an individual or trust, viz., company, partnership or unincorporated association/body of individuals, we shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons, through the following information:
In case of listed companies:
Where the client or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.
In case of foreign investors:
In case of Sovereign Wealth Fund, Foreign Governmental Agency, Central bank, international or multilateral organization and Central or State Government Pension Fund, we shall satisfy ourselves about their status and thereafter, only provisions at point 9 of Annexure III shall be applicable. Further, these entities shall also be a part of KRA centralized system of KYCs
Taking into account the basic principles enshrined in the KYC norms which have already been prescribed or which may be prescribed by SEBI from time to time, all registered intermediaries should frame their own internal guidelines based on their experience in dealing with their clients and legal requirements as per the established practices. Further, the intermediary should also maintain continuous familiarity and follow-up where it notices inconsistencies in the information provided. The underlying principle should be to follow the principles enshrined in the PML Act, 2002 as well as the SEBI Act, 1992 so that the intermediary is aware of the clients on whose behalf it is dealing.
ISF adheres with the KYC (know Your Client) norms of SEBI. We take all the details from the client like in case of individual we take photo identity proof issued by any government authority i.e. Driving License, Passport or Pan Card containing photo. We take address proof, copy of pan card, bank details and demat details and also verify the original of all the above-mentioned documents. We take above-mentioned details of director in case of corporate, details of partner /proprietor in case of firm and Karta in case of HUF and last but not the least, we always take the details of the introducer of the client. We also update our client agreement form and risk disclosure as per the requirement of the regulatory authority from time to time. (Annexure I and Annexure II contains the guidelines followed for acceptance and identification of customers)
The Company has also instructed all staff including branch people to regularly report the transaction of suspicious nature to the Operation Head. We also try to ensure that the payment and delivery is received from the client own bank/ demat account. We don‟t accept any payment from third party and same rule is being followed in case of delivery also.
(** PEP mean politically exposed person cover member of parliament, member of legislative assembly/council or officer bearer of any political parties or held any designated post in any party)
While accepting and executing a client relationship the Company adopts a risk based approached as under:
Low Risk | Medium Risk |
|---|---|
Individual clients, with clean image, not PEP, with investment up to Rs. 50 Lacs, whose identity and sources of wealth can be easily identified | Client over investment of Rs. 50 Lacs where identity and sources of wealth are not supported by public documents like income returns, registered conveyance deeds etc. |
Listed Companies | Clients with sudden spurt in volumes or investment without apparent reasons |
Govt. owned companies, regulated bodies like banks and PMLA regulated intermediaries | Person in business/industry or trading activity where scope or history of unlawful Trading/business activity dealings is more. |
Arbitrageurs | Clients who trade in derivatives |
Client having regular relationship or low
volumes (e.g. up to 50 lacs) | Clients having occasional relationship
but with moderate volumes |
The other clients matching any of the following descriptions shall be compulsorily categorized as a “High Risk Client”
The other clients matching any of the following descriptions shall be compulsorily categorized as a “High Risk Client”
The above mentioned list is only illustrative and the back office should exercise independent judgment to ascertain whether new clients should be classified as CSC or not.
There shall be no minimum investment threshold/ category-wise exemption and above said policy shall be strictly implemented for all the clients.
(Note: The above mentioned list is only illustrative and the Staff shall exercise independent judgment to ascertain whether any other set of clients shall be classified as CSC or not.)
As per SEBI guidelines, we may rely on the third party‟s report for the following purpose:
If the third party is regulated, supervised or monitored by SEBI or other regulator and having measure in place to verify the required compliance with regard to due diligence and sound infrastructure and resources to fulfil record keeping requirement in line with the obligations under the PMLA Act.
Note: However, ISF has not outsourced such activities to any third party and has decided to make customer due diligence ourselves and keep the required document/information.
The margin limit of client is set by RMS Manager depending on client ledger balance & Security Margin deposited with company. Margin server access is restricted to head office only and surveillance department manage the transaction of clients. Margin limits are changed only on phone calls by designated person of Accounts department if funds & Security received from clients.
The margin limit to the medium, high risk clients is strictly given within the available margin of the clients. If client is insist to take any leverage it can be done only for intraday and approval from RMS head to category of medium risk clients and management’s approval is required in case of clients belonging to category of high risk clients.
RMS team also takes extra due diligence with regard to trading pattern of medium and high risk category client along with PEP i.e. traded volume, trading in particular scrips, etc. If they find any unusual trading pattern, they bring to the notice of principal officer and senior management of the company.
As per our policy, we do not accept Pay order/ demand draft/ Banker’s cheques, etc. However we follow following guidelines with respect to electronic funds receipt and acceptance of pre funded instrument only in exceptional circumstances like when we have presumption of client default, etc.
If the aggregate value of pre-funded instruments is Rs 50,000/- or more, per day per client, we may accept the instruments only if the same are accompanied by the name of the bank account holder and number of the bank account debited for the purpose, duly certified by the issuing bank. The mode of certification may include the following:
Note: We maintain an audit trail of the funds received through electronic fund transfers to ensure that the funds were received from the clients only.
The company has adequate screening procedures in place to ensure high standards when hiring employees. They should identify the key positions within their own organization structures having regard to the risk of money laundering and terrorist financing and the size of their business and ensure the employees taking up such key positions are suitable and competent to perform their duties. The HR Department is instructed to cross check all the references and should take adequate safeguards to establish the authenticity and genuineness of the persons before recruiting. The department should obtain the following documents:
Company adopts an ongoing employee training program so that the members of the staff are adequately trained in AML and CFT procedures. Training requirements have specific focuses for frontline staff, back office staff, compliance staff, risk management staff and staff dealing with new customers. It is crucial that all those concerned fully understand the rationale behind these guidelines, obligations and requirements, implement them consistently and are sensitive to the risks of their systems being misused by unscrupulous elements.
Due care will be taken to ensure expeditious adherence of the orders if any issued time to time Section 51A, of the Unlawful Activities (Prevention) Act, 1967(UAPA).
However, if it is not possible for any reason to pass an order unfreezing the assets within fifteen working days, the nodal officer of IS-I Division shall inform the applicant.
Implementation of AML/CFT measures requires back office and trading staff to demand certain information from investors which may be of personal nature or which have hitherto never been called for. Such information can include documents evidencing source of funds/income tax returns/bank records etc. This can sometimes leadto raising of questions by the customer with regard to the motive and purpose of collecting such information. There is, therefore, a need for the back office and trading staff to sensitize their customers about these requirements as the maintaining from AML and CFT framework. The back office and trading staff should prepare specific literature/ pamphlets etc. so as to educate the customer of the objectives of the AML/CFT programme.
The back office and trading staff is instructed to observe the following safeguards:
All said transactions will be maintained in such a manner that data can be retrieved any time If required by any statuary body.
We shall continuously monitor transactions of clients i.e. i) trading – dealing in illiquid share, sudden increase in volume, order on unrealistic price, acting in concert, ii) Demat/Bo account transactions, iii) banking transaction, iv) Cash transactions if offered, v) Whether client has made third party payment (other than his own account), etc. And report to concern staff i.e. Compliance Officer / Principal Officer / Designated Director as per our policy to analyze/verify the transaction identify as suspicious and further course of action to be taken if required.
Dealings in Cash, if any, requiring to report to the FIU IND in the CTR format and in the manner and at intervals as prescribed by the FIUIND.
We will make a note of Suspicious Transaction that have not been explained to the satisfaction of the principal officer and thereafter report the same to the FIU IND within the required deadlines.
Where a client aborts/abandons a suspicious transaction on being asked some information by the company officials, the matter should be reported to FIU in the STR irrespective of the amount.
We will not base our decision on whether to file a STR solely on whether the transaction fails above a set threshold. We will file a STR and notify law enforcement of all transactions that raise an identifiable suspicion of criminal or terrorist corrupt activities.
Utmost confidentially be maintained in filling CTR and STR to FIU-IND. The reports may be transmitted by speed/registered post/fax at the notified address.
In terms of the PMLA Rules, Principal officer is required to report information relating to cash and/or any suspicious transactions found to the Director, Financial Intelligence Unit- India (FIU-IND) electronically with user id and password provided by the FIU-IND. If not able to submit CTR/STR electronically due to any technical problem, we must report to FIU-IND physically at the following address:
Director, FIU-IND
Financial Intelligence Unit-India,
6th Floor, Hotel Samrat, Chanakyapuri,
Website :http://fiuindia.gov.in
No nil reporting needs to be made to FIU-IND in case there are no cash/suspicious transaction to be reported. We shall ensure not to put any restrictions on operations in the accounts where an STR has been made.
ISF and its directors, officers and employees (permanent and temporary) will be prohibited from disclosing (“tipping off”) the fact that a STR or related information is being reported or provided to the FIU-IND. Thus, it should be ensured that there is no tipping off to the client at any level. Our company will create and maintain STRs and CTRs and relevant documentation on customer identity and verification. We will maintain STRs and their accompanying documentation for at least 5years.
In order to facilitate effective surveillance mechanisms at the Member level, the Exchange provide transaction alerts based on the trading activity on the Exchange.
(Nakul Khemka)
Compliance Officer
Name of the Policy maker: Nakul Khemka,
Policy Checker: Sunil Khemka
Last review of policy: July 31, 2021
Policy review period: Quarterly Policy version: 10.7
Names of trustees, settlers, Beneficiaries and signatories
Names and addresses of the founder, the managers/directors and the beneficiaries
Telephone/fax numbers
Certificate of registration, if registered
Power of Attorney/Resolution granted to transact business on its behalf
Any officially valid document to identify the trustees, settlers, beneficiaries and those holding Power of Attorney, founders/managers/ directors and their addresses
Resolution of the managing body of the foundation/association granting authority to transact business
Telephone bill
Features to be verified and documents that may be obtained from Customers Features Documents
Accounts of individuals | Legal name and any other names Used |
| Correct permanent address | |
| Passport | |
| PAN card | |
| Voter’s Identity Card | |
| Driving licence | |
| Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of branch | |
| Telephone bill | |
| Letter from any recognized public authority | |
| Telephone bill | |
| Electricity Bill | |
| Ration Card | |
| Letter from the employer, | |
| (subject to the satisfaction of the branch) | |
| Any other document which provides Customer information to the satisfaction of the broker will suffice. |
Accounts of companies | Name of the company |
| Principal place of business | |
| Mailing address of the company | |
| Telephone/Fax Number | |
| Certificate of incorporation and Memorandum & Articles of Association | |
| Resolution of the Board of Directors to open an account an identification of those who have authority to operate the account | |
| Power of Attorney / Board Resolution granted to its managers, officers or employees to transact business on its behalf | |
| Copy of PAN allotment letter | |
| Copy of the telephone bill | |
Accounts of partnership firms | Legal name |
| Address | |
| Names of all partners and their addresses | |
| Telephone numbers of the firm and partners | |
| Registration certificate, if registered | |
| Partnership Deed | |
| Power of Attorney/ Partnership Letter granted to a partner or an employee of the firm to transact business on its behalf | |
| Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses. | |
| Telephone bill in the name of firm/partners |
Accounts of trusts & foundations | Names of trustees, settlers, Beneficiaries and signatories |
| Names and addresses of the founder, the managers/directors and the beneficiaries | |
| Telephone/fax numbers | |
| Certificate of registration, if registered | |
| Power of Attorney/Resolution granted to transact business on its behalf | |
Any officially valid document to identify the trustees, settlers, beneficiaries and those holding Power of Attorney, founders/managers/ directors and their addresses | |
| Resolution of the managing body of the foundation/association granting authority to transact business | |
| Telephone bill |
Particulars | Guidelines |
|---|---|
Trust/Nominee or Fiduciary Accounts | There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer identification procedures. The Compliance team should determine whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, Compliance team shall insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also obtain details of the nature of the trust or other arrangements in place. While opening an account for a trust, dealers should take reasonable precautions to verify the identity of the trustees and the settlers of trust (including any person settling assets into the trust), grantors, protectors, beneficiaries and signatories. Beneficiaries should be identified when they are defined. In the case of a „foundation’, steps should be taken to verify the founder managers/ directors and the beneficiaries, if defined. |
Accounts of companies and firms | Compliance team need to be vigilant against business entities being used by individuals as a „front‟ for maintaining accounts with brokers. They should examine the control structure of the entity, determine the source of funds and identify the natural persons who have a controlling interest and who comprise the management. These requirements may be moderated according to the risk perception e.g. in the case of a public company it will not be necessary to identify all the shareholders. But at least promoters, directors need to be identified adequately. |
Client accounts opened by professional intermediaries | When the dealer has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client must be identified. Dealers may hold ‘pooled’ accounts managed by professional intermediaries on behalf of Entities like mutual funds, pension funds or other types of funds. Dealers should also maintain ‘pooled’ accounts managed by lawyers/chartered accountants or stockbrokers for funds held ‘on deposit’ or ‘in escrow’ for a range of clients. Where funds held by the Intermediaries are not co-mingled at the branch and there are ‘sub-accounts’, each of them attributable to a beneficial owner, all the beneficial owners must be identified. Where such accounts are co-mingled at the branch, the branch should still look through to the beneficial owners. Where the broker rely on the ‘customer due diligence’ (CDD) done by an intermediary, it shall satisfy itself that the intermediary is regulated and supervised and has adequate systems in place to comply with the KYC requirements. |
Accounts of Politically Exposed Persons(PEPs) resident outside India | Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. Compliance team should gather sufficient information on any person/customer of this category intending to establish a relationship and check all the information available on the person in the public domain. Compliance team should verify the identity of the person and seek information about the sources of funds before accepting the PEP as a customer. The Compliance team should seek prior approval of their concerned Heads for opening an account in the name of PEP. |
Accounts of non-face-to-face customers | With the introduction of telephone and electronic brokering, increasingly accounts are being opened by brokers for customers without the need for the customer to visit the broker branch. In the case of non-face-to-face customers, apart from applying the usual customer identification procedures, there must be specific and adequate procedures to mitigate the higher risk involved. Certification of all the documents presented shall be insisted upon and, if necessary, additional documents may be called for. |
Each version of modified policy must be communicated to all staff and all associates person i.e. branch, Authorized Persons, Sub Brokers. This communication is mandatory in addition to the training session to be given to the staff and associates person from time to time.