What changed
The Prevention of Money-laundering (Maintenance of Records) Rules, 2005 were amended via a government notification published in the Official Gazette on June 16, 2010. Key changes include: (a) a new explanation in Rule 2 defining transactions involving financing of terrorism, (b) substitution of Rule 9(1A) requiring identification and verification of beneficial owners, (c) substitution of Rule 9(1B) mandating ongoing due diligence and transaction scrutiny based on client risk profile, (d) substitution of Rule 9(1C) prohibiting anonymous or fictitious accounts, and (e) insertion of Rule 9(1D) requiring review of due diligence when suspicions arise.
What it means for you
NBFCs and RNBCs must now proactively identify beneficial owners behind clients and continuously monitor transactions for consistency with client knowledge and risk profile. The explicit inclusion of terrorism financing in the rules heightens the need for robust AML frameworks. Non-compliance could lead to regulatory action and reputational risk.
What you must do
- Update internal AML policies to incorporate beneficial owner identification and verification as per amended Rule 9(1A).
- Implement ongoing due diligence procedures to monitor transactions against client risk profiles, as per amended Rule 9(1B).
- Train staff on the expanded definition of transactions involving terrorism financing under Rule 2 explanation.
- Ensure all client records and transaction monitoring systems are aligned with the amended rules effective June 16, 2010.
Who it affects
All Non-Banking Financial Companies (NBFCs), Residuary Non-Banking Companies (RNBCs), Compliance and AML teams within these entities
What is the key change regarding beneficial owners?
Amended Rule 9(1A) now requires every banking company, financial institution, and intermediary (including NBFCs and RNBCs) to determine if a client is acting on behalf of a beneficial owner, identify that owner, and take reasonable steps to verify their identity.
Does this circular apply to banks as well?
The circular is addressed to NBFCs and RNBCs, but the underlying PMLA amendment rules apply to banking companies, financial institutions, and intermediaries. Banks should also ensure compliance.
What is the effective date of these amendments?
The amendments came into force on the date of their publication in the Official Gazette, which is June 16, 2010.