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audit/compliances relating to members of stock exchanges

AUDITING & COMPLIANCES FOR STOCK BROKERS

While carrying out Auditing and Compliances related activities for the stock broker, Auditor is also expected to adhere to various pronouncements issued by Institute of Chartered Accountants of India (ICAI) and the guidance, procedures and requirements prescribed in applicable statutes under which these activities are being carried out.

The checklist and the various areas, which are enumerated here under, are specifically designed considering peculiar accounting systems and complex trading mechanism relating to stock broking activities.

CONTENTS

1) Books of Accounts to be maintained as per Securities & Exchange Board of India (SEBI) Stock Brokers & Sub-Brokers Rule, 1992

2) Books of Accounts to be maintained as per Securities Contracts (Regulation) Rules, 1957

3) The Audit Report to be submitted by the members should be in the prescribed format, as per Securities Contracts (Regulation) Act

4) Format of half yearly internal audit certificate prescribed by stock exchanges

5) Checklist for compliance audit /review relating to stock brokers

1. Books of accounts to be maintained as per Securities & Exchange Board of India (sebi) Stock Brokers & Sub-brokers Rule, 1992

Following Books of Accounts are to be maintained by Stock Broker

Regulation - 17

1) Every stock-broker shall keep and maintain the following books of accounts, records and documents namely: -

  1. Register of transactions (Sauda Book);

  2. Clients ledger;

  3. General ledger;

  4. Journals;

  5. Cash book;

  6. Bank pass book;

  7. Documents register containing inter alia, particulars of securities received and delivered in physical form and the statement of account and other records relating to receipt and delivery of securities provided by the depository participants in respect of dematerialized securities;

  8. Members’ contract books showing details of all contracts entered into by him with other members of the same exchange of counterfoils or duplicates of memos of confirmation issued to such other member;

  9. Counterfoils or duplicates of contract notes issued to clients;

  10. Written consent of clients in respect of contracts entered into as principals;

  11. Margin deposit book;

  12. Registers of accounts of sub-brokers;

  13. An agreement with a sub-broker specifying the scope of authority and responsibilities of the Stock Broker and such sub-broker.

  14. An agreement with the sub-broker and with the client of the sub-broker to establish privity of contract between the stock broker and the client of the sub-broker.

2) Every stock broker shall intimate to SEBI the place where the books of accounts, records and documents are maintained.

3) Without prejudice to sub-regulation (1), every stock broker shall, after the close of each accounting period furnish to the SEBI if so required as soon as possible but not later than six months from the close of the said period a copy of the audited balance sheet and profit and loss account, as at the end of the said accounting period:

Provided that, if it is not possible to furnish the above documents within the time specified, the stock broker shall keep SEBI informed of the same together with the reasons for the delay and the period of time by which such documents would be furnished.

Maintenance of books of accounts and records

Every stock broker shall preserve the books of accounts and other records maintained under regulation 17 for a minimum period of five years. In case of books of accounts or any documents have been taken by CBI, Police or any other enforcement agency during the course of any investigation then original documents needs to be preserved till trial is completed.

2. As per Securities Contracts (Regulation) Rules, 1957, Stock broker is required to maintain the following books of accounts

Regulation - 15

Books of accounts and other documents to be maintained and preserved by every member of a recognised stock exchange

1) Every member of a recognised stock exchange shall maintain and preserve the following books of account and documents for a period of five years:

  1. Register of transactions (Sauda book).

  2. Client’s ledger.

  3. General ledger.

  4. Journals

  5. Cash book.

  6. Bank pass-book.

  7. Documents register showing full particulars of shares and securities received and delivered.

2) Every member of a recognised stock exchange shall maintain and preserve the following documents for a period of two years:

  1. Member’s contract books showing details of all contracts entered into by him with other members of the same exchange or counterfoils or duplicates of memos of confirmation issued to such other members.

  2. Counterfoils or duplicates of contract notes issued to clients.

  3. Written consent of clients in respect of contracts entered into as principals.

3. The Audit Report to be submitted by the members should be in the following format, as suggested by Securities Contracts (Regulation) Act

“We have audited the attached Balance Sheet of M/s _______________________________ as at ________________________ and the Profit & Loss Account for the year ended on that date annexed thereto and reported that:

a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit.

b) In our opinion, proper books of accounts and records as specified in Rule 15 of the Securities Contracts (Regulation) Rules, 1957 have been kept so far as appears from our examination of such books.

c) The stock broker has complied with the requirements of the stock exchange, so far as they relate to maintenance of accounts and was regular in submitting the required accounting information to the stock exchange.

d) The Balance Sheet and the Profit & Loss Account referred to in this report are in agreement with the books of account.

e) In our opinion and to the best of our information and according to the explanations given to us, the said Balance Sheet and the Profit & Loss A/c read together with the notes thereon give a true and fair view insofar as it relates to the Balance Sheet, of the state of affairs of  M/s __________________________, and insofar as it relates to the profit and loss account, of the profit of M/s __________________for the year ended on that date.”

For ________________________
(Name of CA Firm)
Partner / Proprietor

4. Format of Half yearly Internal Audit Certificate prescribed by stock exchanges

CERTIFICATE FOR INTERNAL AUDIT

We have examined the relevant books of accounts, records and documents maintained by M/s. _______________, (name of the trading/clearing member) bearing SEBI registration number ______________________) a member of the National Stock Exchange of India Limited / Bombay Stock Exchange Ltd / MCX-Stock Exchange /other Stock Exchange, for the following segments to fulfil the internal audit requirement as prescribed by SEBI vide Circulars dated 22nd August, 2008 & 21st October, 2008, for the half year ended_____________________.

Segment Activity SEBI
Cash Segment/Derivatives (Trading/ registration
Segment / Debt Segment / Clearing/ number
Currency Derivatives/ Trading and  
Securities Lending & Clearing)  

Borrowing segment)

 

The purpose of this Audit is to examine that the processes, procedures followed and the operations carried out by the Trading Member/Clearing Member are as per the applicable Acts, Rules, Regulations, Bye-laws and Circulars prescribed by SEBI and the stock exchange(s).

We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of this Internal Audit. In our opinion proper books of accounts, records and documents, as per the regulatory requirement have been maintained by the member, so far as it appears from examination of the books.

We have conducted the audit within the framework provided by SEBI/Stock Exchange for the purpose of this Internal Audit.

To the best of our knowledge and belief and according to the information and explanations given to us, no material fraud / non-compliance /violation by the Member is observed during the course of this Audit.

Based on the scrutiny of relevant books of accounts, records and documents , we certify that the Member has complied with the relevant provisions of SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and various circulars of SEBI. The Member has complied with the Rules, Bye laws, Regulations of NSE / BSE / MCX-SE and various circulars issued by the Stock Exchange and Clearing Corporation/Clearing House.

We declare that we do not have any direct/indirect interest in or relationship with the member or its share holders / directors / partners / proprietors / management and also confirm that we do not perceive any conflict of interest in such relationship / interest while conducting internal audit of the said member.

In our opinion and to the best of our information and according to the explanations given to us by the proprietor/partner (s)/director (s)/ compliance officer, the Report provided by us as per the Annexure and subject to our observations, which covers the entire scope of the Audit, is true and correct.
__________________

Company Secretary / Cost and Management Accountant / Chartered Accountant
(Seal & Signature)
(Name of the Proprietor / Partner)
Membership No. / CP. No.

Place:

Date:

5. Checklist for Compliance Audit / Review relating to Stock Brokers

Books of Accounts:

  • Books of Accounts as per SCRA & SEBI (Stock Brokers and Sub-Brokers) Regulations are maintained.

  • Books of Accounts are maintained properly.

  • Books of Accounts are maintained properly for branch/ sub-broker.

  • Exchange wise separate books of accounts are maintained.

  • Securities Register, Margin Deposit Book, Grievance Register, etc. are maintained.

Client Registration:

  • Execution of Client Registration Form or maintaining complete client database.

  • Execution of member-client agreement or agreement in prescribed format.

  • Risk Disclosure Document obtained from client in SEBI prescribed format.

  • Proof of Identity, Proof of Address, PAN Card Copy, Bank Account Proof & Demat Account Proof are obtained in case of Individual Clients.

  • Proof of Address, Registration Copy, PAN Card Copy, Bank Account Proof & Demat Account Proof are obtained in case of Non-Individual Clients.

  • ‘In Person’ verification is conducted for Non-Corporate clients.

  • Agreements are appropriately stamped.

  • Periodical review of client information.

  • Monitoring Trading activity of the client with financial information provided.

  • Updated annual financial statements are obtained from non-individual clients.

  • Clients are informed in writing that only the documents stated in SEBI Model Agreements are mandatory and any additional clause or documentation shall be voluntary and at the discretion of the trading member and the client. Additional documents (if any) have stated at the beginning in bold that the document is voluntary.

  • The docket or folder containing mandatory documents for signing and the checklist containing mandatory documents shall not include voluntary documents, if any.

  • No documentation shall give any exclusive right or control to the trading member or third party over the DP account or ledger account or bank account of the client except to the extent of and restricted to the client’s obligation to the trading member in respect of the transactions done or to be done (like up-front margin) by the trading member on behalf of the client on the Exchange.

  • Dispatch of copy of Client Registration Documents along with UCC and email id of the client.

  • In case of client is trading on Internet Facility, a separate agreement of the same is entered into.

Unique Client Code:

  • Unique Client Code is assigned to all the clients.

  • UCC is registered with the Exchange.

  • Entered correct/unique client codes while placing the orders in the system/and mapping the client code with PAN/ Passport etc. in the back office, and entering the client details on BOLT.

  • Modification in client codes.

Sub-Brokers, Remisiers & Branch offices:

  • Stock broker is dealing with registered sub-brokers and remisiers.

  • Sharing commission or brokerage with registered sub-broker / remisiers with the exchange/SEBI.

  • Members of other exchanges, routing orders of their clients through BOLT/NEAT, after being registered as Sub-brokers with SEBI.

  • Verify there is no sharing of brokerage with another trading member or employee of another trading member or a person who has been suspended / expelled / forbidden to do business.

  • Periodical inspection has been carried out.

  • Internal controls with Sub-brokers and branch offices.

  • System and policy followed for opening / closing of branch offices.

Contract Notes:

  • Issuance of contract notes with the signature of the authorised signatory and which bear a running serial number or bear a serial number, which is initialized at the beginning of each financial year.

  • Contract Note is as per the format prescribed by the Exchange

  • Board Resolution/ Power of Attorney for signing of Contract Notes submitted to the Exchange.

  • Contract notes are issued to all the clients.

  • Contract notes are issued within 24 hours of trade execution

  • Duplicates of the contract notes issued are acknowledged by clients / record of dispatch in case of dispatch through courier or post is maintained.

  • Duplicates of the contract notes are maintained in case of physical contract notes. Counter foils maintained are having adequate details.

  • In case of contract notes issued thru electronic media, Log of ECN is maintained and ECN are signed digitally.

  • Details of the trade have been attached as an Annexure to the contract note (original/duplicate) issued, in case of consolidated trade shown in contract note.

  • Provision for printing of PAN of the member and PAN of the constituents. It is compulsory to obtain PAN proof of the client and the same printed on the Contract Note issued to client.

  • Dealing Office and Registered Office Details are printed on the contract notes.

  • Brokerage charged within the permissible limits.

  • Brokerage for option contracts are charged on the premium amount at which the option contract was bought or sold and not on the strike price of the option contract. Brokerage on options contracts shall not exceed 2.5% of the premium amount or Rs 100/- whichever is higher.

  • Contract Notes are issued on pre printed stationery with a running serial number. The serial numbering shall be reset at the beginning of each financial year.

  • Client code, Market Rates, Order Time, Order ID, Trade ID, etc. of the Contract Notes are matching with trade file.

  • Transactions for Institutions/custodian are properly reported through STP.

Terminal Operations and Systems:

  • Terminals are provided in head office, branch office or the office of sub-brokers.

  • Terminals are operated by approved users or approved persons with valid certification.

  • Correct user name, login id, terminal location, etc. are reported to the exchange

  • CTCL / IML facility has been used only with the prior approval of the exchange.

  • Yearly System Audit for CTCL and IBT and submission of report to NSE.

  • Yearly System Audit for IML, IBT and submission of report to BSE.

  • Updated version of software is used.

Transactions done without executing on Trading Terminal (BOLT/NEAT):

  • All trades are needs to be executed on the BOLT/NEAT except for off-market trades allowed in BSE, which is required to be reported to the exchange within prescribed time limit.

  • Ensure that contract notes are not issued for transactions in securities not listed / permitted on the Exchange.

  • Taken written consent from the client for principal to principal transactions.

  • Contract Notes are issued in prescribed Form ‘B’ for principal to principal transactions (off market transactions). (in case of BSE)

  • Transactions done on a spot basis are reported to the Exchange within the prescribed time limit. (Applicable where such transactions are allowed).

Client Monies:

  • Client’s funds are routed through designated ‘Client Account’ only.

  • Proper Segregation of own and client transactions in separate bank accounts.

  • Use of Client account only for purposes allowed by the exchange/SEBI.

  • Ensure that clients’ funds are not used for own purposes / are not misutilised / are not transfered from one client’s account to another client’s account.

  • Payments to clients are made within the prescribed time limit.

  • Payment of dividend amounts to clients and reconciliation of dividend account.

  • Member should not deal with clients in cash.

  • Internal controls while dealing in dormant client account.

  • System for verification of third party cheque.

Clients Securities:

  • Securities due to the clients should not be transferred to the members’ beneficiary account.

  • Securities due to one client should not be transferred to another client or Securities due to the clients should not be used for meeting the pay-in obligation of the member/other client.

  • Member should not accept securities from third party account for pay-in obligation of the client and should not deliver securities to third party account for pay-out obligation of the client.

  • Complete ‘Statement of Accounts’ for funds and securities with error reporting clause has been sent to the clients within 30 days on every Calendar quarter.

Collection of Margins:

  • Collection / Maintenance of Initial Margins are properly accounted and reported to exchange in case of Derivative segment.

  • Compliances related to Margin Trading Facility (MTF) is adhered to.

  • Risk Management Policy is well documented in case of cash segment.

  • Whether Client Margin information is given to clients on day- to-day basis.

  • Whether records relating to receipt of collateral from client is maintained.

  • Whether authorization of client is obtained for deposit of collateral with the exchange/clearing corporation/clearing house towards margin.

Advertisement:

  • Prior written approval obtained from the exchange for advertisement to be made for business purposes or issue circular or other business communications to persons other than Member’s own constituents.

Prevention of Money Laundering:

  • Appointment of Principal Officer for ensuring Compliance of the provisions of the PMLA (Prevention of Money Laundering Act).

  • Existence of adequate Anti Money Laundering Policy.

  • Compliances of Guidelines on Anti Money Laundering Standards.

  • Adequate system to generate alerts for suspicious transactions.

  • Categorization of clients as per risk perception.

Others:

  • Appointment of Compliance Officer as per SEBI (Stock Brokers and Sub Brokers Regulation 18A (1992)

  • If broker is doing pro trading, whether broker has disclosed this information to his clients.

  • If broker is doing pro trading from multiple locations, whether broker has obtained prior approval from the exchange in this regard.

  • SEBI Fees based on Turnover is paid to SEBI.

  • Business done on behalf of suspended / defaulter / expelled members without obtaining prior permission of the exchange.

  • Maintenance of Securities Register, Margin Deposit Book, Investor’s Grievance Register, Dividend Ledger.

  • Net worth is within the limit prescribed by the exchange.

  • Permission of Exchange & SEBI is taken for change in shareholding pattern, Directors, Dominant Promoters Group, mergers and amalgamation.

  • Code of conduct as prescribed by SEBI adhered to.

  • Display of Notice Board & SEBI Registration Certificate.

  • Adherence to Prevention of Insider Trading Regulations.

  • Exclusive email id of the grievance redressal division/ compliance officer has been designated and informed to the exchange about the same.

  • STT statement is provided to clients on annual basis unless otherwise required by the client.

  • Prior Permission obtained for Securities Lending and Borrowing Scheme from the exchanges.

  • Submission of Annual Compliance Report, Annual Returns to exchanges.

  • Submission of half yearly Internal Audit Report / certificate to the exchanges.

 

Checklist for Prevention of Money Laundering

Introduction:

The Prevention of Money Laundering Act, 2002 (PMLA) has been brought into force with effect from 1st July 2005. Necessary Notifications / Rules under the said Act have been published in the Gazette of India on 1st July 2005 by the Department of Revenue, Ministry of Finance, Government of India.

As per the provisions of the Act, every banking company, financial institution (which includes chit fund company, a co-operative 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 maintain a record of all the transactions; the nature and value of which has been prescribed in the Rules notified under the PMLA. As per Rule 3 of Prevention of Money Laundering Rules, 2005 such transactions include:

  • 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 take place within one calendar month.

  • All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable security has taken place.

  • All suspicious transactions whether or not made in cash.

SEBI had, vide Circular No. ISD/CIR/RR/AML/1/06 dated 18-1-2006, issued the Guidelines to the intermediaries as specified above, in the context of the recommendations made by the Financial Action Task Force (FATF) on anti-money laundering standards. Compliance with these standards by all intermediaries and the country has become imperative for international financial relationships. It may be noted that these Guidelines lay down the minimum requirements / disclosures to be made in respect of clients. The intermediaries may, according to their requirements specify additional disclosures to be made by clients to address concerns of Money Laundering and suspicious transactions undertaken by clients.

SEBI had, vide Circular No. ISD/CIR/RR/AML/1/06 dated 18-1-2006, advised all intermediaries to ensure that a proper policy framework as per the Guidelines on anti-money laundering measures is put into place within one month from the date of the circular.

The intermediaries were required to designate an officer as ‘Principal Officer’ who would be responsible for ensuring compliance of the provisions of the PMLA. Names, designation and addresses (including e-mail addresses) of ‘Principal Officer’ shall be intimated to the Office of the Director-FIU, 6th Floor, Hotel Samrat, Chanakyapuri, New Delhi - 110 021, India on an immediate basis.

The Guidelines on Anti-Money Laundering Standards provides a general background on the subjects of money laundering and terrorist financing, summarizes the main provisions of the applicable anti-money laundering and anti-terrorist financing legislation in India and provides guidance on the practical implications of the Act. The Guidelines also sets out the steps that a registered intermediary and any of its representatives, should implement to discourage and identify any money laundering or terrorist financing activities.

These Guidelines are intended for use primarily by intermediaries registered under Section 12 of the SEBI Act, 1992. While it is recognized that a “one-size-fits-all” approach may not be appropriate for the securities industry in India, each registered intermediary should consider the specific nature of its business, organizational structure, type of customers and transactions, etc. when implementing the suggested measures and procedures to ensure that they are effectively applied. The overriding principle is 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. (PMLA)

Checklist:

The checklist for compliance of Prevention of Money Laundering Act is given below:

One Time/Periodical Compliances:

  1. Whether proper policy framework as per the Guidelines on anti-money laundering measures is put into place within one month from the date of the SEBI Circular dated 18th January, 2006?

  2. Whether the above referred policy is approved by Board of Directors?

  3. Whether an officer is appointed as ‘Principal Officer’?

  4. Whether such appointment of ‘Principal Officer’ is intimated to Office of the Director-FIU, New Delhi?

  5. Whether proper record of transactions prescribed under Rule 3 are maintained?

  6. Whether the following information in respect of transactions referred to in Rule 3 are maintained and preserved?

i. the nature of the transactions;
ii. the amount of the transaction and the currency in which it was denominated;
iii. the date on which the transaction was conducted; and
iv. the parties to the transaction.

  1. Whether an internal mechanism has been evolved for proper maintenance and preservation of such records and information in a manner that allows easy and quick retrieval of data as and when requested by the competent authorities?

  2. Whether such records as are sufficient to permit reconstruction of individual transactions (including the amounts and types of currencies involved, if any) have been maintained so as to provide, if necessary, evidence for prosecution of criminal behaviour?

  3. Whether regularly reviewed the policies and procedures on prevention of money laundering and terrorist financing to ensure their effectiveness?

  4. Whether review is done by the person who is different from the person who has framed such policies and procedures?

Ongoing /Continuous Compliance:

  1. Whether the following information has been maintained for the purpose of satisfactory audit trail?

a) the beneficial owner of the account;
b) the volume of the funds flowing through the account; and
c) for selected transactions:

i. the origin of the funds;
ii. the form in which the funds were offered or withdrawn, e.g. cash, cheques, etc.;
iii. the identity of the person undertaking the transaction;
iv. the destination of the funds;
v. the form of instruction and authority.

Customer Due Diligence:

  1. Whether Customer Due Diligence Process has been conducted?

  2. Whether the records of the identity of clients have been maintained?

  3. Whether sufficient information in order to identify persons who beneficially own or control securities account has been obtained?

  4. Whether beneficial ownership and control has been identified, i.e. which individual(s) ultimately own(s) or control(s) the customer and/or the person on whose behalf a transaction is being conducted?

  5. Whether the customer’s identity using reliable, independent source documents, data or information has been verified?

  6. Whether ongoing due diligence and scrutiny has been conducted?

Policy for Acceptance of Clients:

  1. Whether customer acceptance policy has been defined?

  2. Whether safeguard has been taken while accepting the clients that no account is opened in a fictitious or benami name or on an anonymous basis?

  3. Whether documentation requirement and other information in respect of different classes of clients depending on perceived risk and having regard to the requirement to the Prevention of Money Laundering Act 2002, guidelines issued by RBI and SEBI from time to time have been collected?

  4. Whether the identity of the client is verified for known criminal records or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency worldwide?

  5. Whether failure by prospective client to provide satisfactory evidence of identity have been noted and reported to the higher authority?

Client Identification Procedure:

  1. Whether the client identification programme has been formulated on lines of rules and act of prevention of money laundering

  2. Whether the client identification programme is implemented?

  3. Whether Customer Due Diligence has been conducted on a risk sensitive basis depending on the type of customer business relationship?

  4. Whether customers are identified as per risk sensitive basis?

Monitoring of Transactions:

  1. Whether regular monitoring of transactions is done for ensuring effectiveness of the Anti Money Laundering procedures?

  2. Whether special attention has been given to all complex, unusually large transactions/patterns which appear to have no economic purpose?

  3. Whether the compliance cell or department has randomly examined a selection of transaction undertaken by clients to comment on their nature i.e. whether they are in the suspicious transactions or not?

Suspicious Transaction Monitoring and Reporting:

  1. Whether transaction of suspicious nature or any other transaction notified is reported to the appropriate law authority?

  2. Whether suspicious transactions are also regularly reported to the higher authorities/head of the department?

  3. Whether the Cash Transaction Report (CTR) (wherever applicable) for each month is submitted to FIU-IND by 15th of the succeeding month?

  4. Whether the Suspicious Transaction Report (STR) is submitted within 7 days of arriving at a conclusion that any transaction, whether cash or non-cash, or a series of transactions integrally connected are of suspicious nature?

  5. Whether the Principal Officer has recorded his reasons for treating any transaction or a series of transactions as suspicious? Whether there is any undue delay in arriving at such a conclusion?

Training to Staff and Hiring Policies:

  1. Whether the content of PML Guidelines is understood by all staff members? Whether appropriate training has been provided to staff?

  2. Whether staff members’ awareness and vigilance to guard against money laundering and terrorist financing has been developed?

  3. Whether having adequate screening procedures in place to ensure high standards when hiring employees?

Investor Education:

  1. Whether the intermediary has prepared specific literature / pamphlets, etc. so as to educate clients of the objective of AML?

Audit/Testing of Anti Money Laundering Programme:

  1. Whether the audit is conducted periodically to test Anti Money Laundering Programme adequacy to meet the compliance requirements?

  2. Whether the audit/testing is conducted by member’s own personnel not involved in framing or implementing the AML programme or it is done by a qualified third party?

  3. Whether the report of such an audit/testing is placed before the senior management for making suitable modifications/ improvements in the AML programme?

Procedural Compliances:

  1. Whether KYC is complete in all respects before opening any client account?

  2. Whether Branch/Relationship Managers are instructed to verify all original documents with copies of the same which form part of supporting to KYC?

  3. Whether any account is opened without Introducer details and signature? If yes, whether any employee of the organization has taken interview of the client?

  4. Whether any guidelines has been given to branches for the following:

a. No Cash transactions
b. No Third Party Cheque or Securities to be accepted
c. No Demand Draft to be accepted
d. POA with Photo Identity and address proof
e. Income Proof of HNI Clients

  1. Whether KYC Profile for risk sensitive clients including HNI is updated on periodical basis?

  2. Whether the following transactions are monitored and reported to Principal Officer?

a. Client whose identity verifications seems difficult or client appears not to co-operate in providing details.

b. Clients in high risk jurisdictions

c. Substantial increase in volume without apparent cause

d. Large number of accounts having common parameters such as common partners / directors / promoters / address / email address / telephone numbers / introducers or authorized signatories

e. Unusually large cash deposits made by an individual or business

f. Client is willing to accept uneconomic terms without apparent reason

g. Transaction inconsistent with legitimate business activity

h. Transaction inconsistent with the normal pattern of client’s investment activity

i. Client is financially capable of transactions he has asked for

j. Activity of the client is resumed after being in-operative for more than 3 months

k. High value payments made from bank accounts not notified in KYC form

l. Transfer of large number of securities from demat accounts not notified in KYC form or not pertaining to client

m. Multiple transactions of value just below the threshold limit specified in PMLA so as to avoid possible reporting

n. Purchases made on own account transferred to a third party through off market transactions through DP Accounts.

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