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SEBI Order: ADJUDICATION ORDER NO. RA/CB/122/2017 dated July 31, 2017

Analyze This: Case of BOI Shareholding is “the talking point “ in compliance teams.

SEBI Order: ADJUDICATION ORDER NO. RA/CB/122/2017 dated July 31, 2017

This order can give much needed direction and importance to AML and Surveillance risk management with the intermediaries who focus on such risks only to the show case minimalistic regulatory compliance

Based on the inspection reports:

  1. PMLA policy of the Noticee BOI Shareholding ( Depository Participant) was allegedly not amended in compliance with the specified circulars.
  2. Noticee did not have checks and balances in place to verify the identity of a client with criminal records database or civil proceedings by any enforcement agency worldwide.
  3. Noticee did not check the names of existing clients with the sanctioned lists available on the website of the United Nations.
  4. It was also observed that the AML policies and procedures of the Noticee did not include:
  • provisions relating to “tipping off” and “investor education” and
  • procedure for freezing of funds, financial assets or economic resources or related services and definition of Clients of Special Category as well as
  • the procedure for carrying out enhanced due diligence for clients categorized as the CSC
  • the Guidelines on Identification of Beneficial Ownership issued by SEBI

In view of above following was highlighted:

  • Noticee did not categorize its clients into low risk, medium risk and high risk categories.
  • Although Noticee factored the fortnightly alerts by the Depositories  but did not have a separate alert mechanism of its own.

What does this mean to any business intermediary?

  • Important to profile your clients based on different attributes like type of business, income, networth, client watch-list status, client location risk, etc. Auto profiling removes subjectivity from client risk profiling.
  • Also important is establishing Beneficial ownership of the client-this is core to any AML scenario-so client linkages of relationships with other clients on account of contact details matching or client holding or POA holding pattern

As per the order, although BOI Shareholding as a DP had taken mitigating actions, they cannot be absolved from the mandatory obligation of immediate compliance to the provisions.

What does this imply:

It should be remembered that a delayed corrective action had made the entire related environment vulnerable.

This is a very important point made in the order, hence important that the system an organisation uses has the ability to size up

What comes across as one of the most important highlights is -The AML Circular clearly underlines that it is recognized that a ‘one-size-fits-all’ approach may not be appropriate hence each registered intermediary to consider the specific nature of its business, organizational structure, type of clients and transactions etc. when implementing to ensure that they are effectively applied.

The most important overriding principle is that the measures should be adequate, appropriate and abide by the spirit of such measures and the requirements as enshrined in the PMLA

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