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EXTRACT FROM POLICY
ON
ANTI MONEY LAUNDRING ON STOCK BROKING
FOR
CLIENTS AWARNESS
As per SEBI’s Master Circular on AML/CFT CIR/ISD/AML/3/2010, Dated 31-12-2010
1. Background
1.1 Pursuant to the recommendations made by the financial action task force on anti-money laundering standards, SEBI vide its Circular reference no. CIR/ISD/AML/3/2010 dated 31-12-2010 has issued a Master Circular on Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) . This Master Circular supersedes the earlier circulars. As per these SEBI guidelines, all intermediaries have been advised to ensure that proper policy frameworks are put in place as per the Guidelines on Anti Money Laundering Standards notified by SEBI.
1.2 Need Of Money Laundering
  • Every year, huge amounts of funds are generated from illegal activities. These funds are mostly in the form of cash.
  • The Criminals who generate these funds need to bring them into the legitimate financial system.
2. Steps in which money is Laundered
Money laundering basically involves three independent steps
  • Placement: This refers to physical disposal of bulk cash proceeds derived from illegal activity.
  • Layering: Refers to separation of illicit proceeds from their source by creating complex layers of financial transactions. Layering conceals the audit trail and provides anonymity.
  • Integration: Refers to the re-injection of the laundered proceeds back into the economy in such a way that they re-enter the financial system as normal business funds. Banks and financial intermediaries are vulnerable from the Money Laundering point of view since criminal proceeds can enter banks in the form of large cash deposits.
3. Prevention money laundering Act, 2002
3.1. Prevention 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 July1, 2005
3.2The PMLA 2002 and Rules notified there under impose an obligation on intermediaries (including stock broker and sub-broker) to verify identity of client, maintain records and furnish information to the financial intelligence Unit (FIU) – INDIA.
4. Financial Intelligence Unit (FIU) –INDIA 3. Prevention money laundering Act, 2002
4.1 The Govt.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.
4.2 FIU_IND has been established as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions. FIN-IND is also responsible for coordinating and stretching efforts of national and international intelligence and enforcement agencies in pursing the global efforts against money laundering and related crimes.
5. Policy of CFS Financial Services Private Limited (CFS)
5.1. CFS Financial Services Private Limited (CFS) 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
6. Implementation of This Policy
6.1. Mr. C S Chaudhry, Director, CFS Financial Services Private Limited will be the Principal Officer who will be responsible for
  • Compliance of the provisions of the PMLA and AML Guidelines
  • Policy for Acceptance of Client
  • Procedure for identifying the Client.
  • Ensure that CFS discharges its legal obligation for Transaction monitoring and reporting especially Suspicious Transaction Report (STR) to the concerned authorities.
6.2 The main aspect of this policy is the Customer Due Diligence (CDD) Process which Comprise the following:
  • Obtaining sufficient information about the client in order to identify who is the actual beneficial owner of the securities or on whose behalf transaction is conducted;
  • Verify the Customer’s identity using reliable, independent source document, data or information;
  • Identify beneficial ownership and control, i.e. determine which individual(s) ultimately own(s) or control(s) the customer and/or the person on whose behalf a transaction is being conducted;
  • Conduct on-going due diligence and scrutiny of the account/client to ensure that the transaction conducted are consistent with the client’s background/financial status, its activities and risk profile.

6.3. The Client Due Diligence Process includes three specific parameters:
  • Policy for Acceptance of Clients
  • Procedure for Identifying the Client
  • Suspicious Transaction identification & reporting
Client Due Diligence
The CDD measures comprise the following:
  • Obtaining sufficient information in order to identify persons who beneficially own or control the 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 shall be identified using client identification and verification procedures. The beneficial owner is the natural person or persons who ultimately own, control or influence a client and / or persons on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.
  • Verify the client’s identity using reliable, independent source documents, data or information;
  • Identify beneficial ownership and control, i.e. determine which individual(s) ultimately own(s) or control(s) the client and / or the person on whose behalf a transaction is being conducted;
  • Verify the identity of the beneficial owner of the client and / or the person on whose behalf a transaction is being conducted, corroborating the information provided in relation to (c) ;
  • Understand the ownership and control structure of the Client;
  • Conduct ongoing due diligence and scrutiny, i.e. Perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the registered intermediary’s knowledge of the client, its business and risk profile, taking into account, where necessary, the client’s source of funds and
  • Registered intermediaries shall periodically update all documents, data or information of all clients and beneficial owners collected under the CDD process.
6.4. Customer Acceptance Policy Client Due Diligence
6.4.1 CFS Financial Services Private Limited had developed customer acceptance policy and procedures that aim to identity the types of customers that are likely to pose a higher than the average risk of Money Laundering or Terrorist Financing. By establishing such policies and procedures, we will be in a better position to apply customer due diligence on a risk sensitive basis depending on the type of customer business relationship or transaction. In a nutshell, the following safeguards are followed while accepting the clients:
  • Each client should be met in person: Accept client whom we are able to meet personally either the client should visit the office/branch or concerned official may visit the client at the residence / office address to get the necessary document filled in and signed. Preferably accept client who live within the justification of the branch. As far as possible, ensure that the new client is introduced by an existing client.
  • Accept Clients on whom we are able to apply appropriate KYC procedures: 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 Clients are checked against original documents without any exception. Ensure that the ‘KNOW YOUR CUSTOMER 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
  • Do not accept clients with identity matching persons known to have criminal background: Check weather the Clients 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
  • Be careful while accepting Clients of Special category: 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 share holding / beneficial ownership, companies offering foreign exchange offerings, non face to face clients, clients with dubious background, Current / Former Head of State, Current or Former Senior High profile politician connected persons (immediate family, Close advisors and companies in which such individuals have interest or significant influence), clients in high-risk countries Countries active in narcotics production, Countries where corruption (as per Transparency International Corruption Perception Index) is highly prevalent, Countries against which government sanctions are applied, Countries reputed to be any of the following – Havens / sponsors of international terrorism, offshore financial centers, tax havens, countries where fraud is highly prevalent. Scrutinize minutely the records / documents pertaining to clients belonging to aforesaid category
  • Do not accept client registration forms which are suspected to be fictitious: Ensure that no account is being opened in a fictitious/ benami name or an anonymous basis.
  • Do not compromise on submission of mandatory information / document: 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 refuse to provide information/ documents and we should have sufficient reason to reject the client towards this reluctance.
6.5 Clients of Special Category (CSC)
Such clients include the following:-
  • Non resident clients
  • High Net- worth Clients
  • Trust, Charities, Non – Government Organisational (NGO’s) and Organisations receiving donations
  • Companies having close family shareholdings or beneficial ownership
  • Politically Exposed Person (PEP) 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. The additional norms applicable to PEP as contained in the subsequent para 7.2 of this Policy shall also be applied to the accounts of the family members or close relatives of PEPs
  • Companies offering foreign exchange offerings
  • Clients in high risk countries where existence / effectiveness of money laundering controls is suspect, where there is unusual banking secrecy, countries active in narcotics production, countries where corruption (as per Transparency International Corruption Perception Index) is highly prevalent, countries reputed to any of the following – Havens / sponsors of International terrorism, offshore financial centers, tax havens, countries where fraud is highly prevalent. While dealing with clients in high risk countries where the existence / effectiveness of money laundering control is suspect
  • Non face to face clients
  • Clients with dubious reputation as per public information available.
6.6. Customer identification procedure
Our KYC policy clearly spells 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 following requirements are put in place for a Client Identification Procedure (CIP):
  • We have proactively put in place appropriately risk management systems to determine whether our client or potential client or the beneficial owner of such client is a politically exposed person. The procedures include seeking relevant information from the client, referring to publicly available information or accessing the commercial electronic databases of PEPS. Further, the enhanced CDD measures as outlined in this also is applicable where the beneficial owner of a client is a PEP.
  • We have put systems in place to obtain senior management approval 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, our officials obtain senior management approval to continue the business relationship.
  • Systems are put in place to take reasonable measures to verify the sources of funds as well as the wealth of clients and beneficial owners identified as PEP.
  • We obtain adequate information to satisfactorily establish the identity of each new client and the purpose of the intended nature of the relationship.
  • If any prospective client fails to provide satisfactory evidence of identity then the same is to be reported to the higher authority.
  • 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.
6.6.1. Documents which can be relied upon:
PAN CARD : PAN card is mandatory and is most reliable document as only one card is issued to an individual and we can independently check its genuineness through IT website.
IDENTITY PROOF : PAN Card itself can serve as proof of identity. However, in case PAN card carries an old photograph of the holder, which does not match current facial features of the client, we should take other identity proof in form of Voter’s Identity card, Passport, Ration Card or any Government/PSU/Bank issued photo identity card.
ADDRESS PROOF : For valid address proof we can rely on Voter’s Identity Card, Passport, Bank Statement, Ration card and latest Electricity/telephone bill in the name of the client.
6.6.2. Documents to be obtained as part of customer identification procedure for new clients:
a. In case of individuals, one copy of the following documents has to be obtained:
  • As PAN is mandatory, verify its genuineness with IT website and cross verify the PAN card copy with the original. [Please put _verified with original_ stamp as proof of verification]
  • Other proofs for identity are Voter’s Identity card, Passport, Ration Card or any Government/PSU/Bank issued photo identity card or any other document prescribed by the regulatory authorities.
  • Address proof in the form of Voter’s Identity Card, Passport, Bank Statement, Ration card and latest Electricity/telephone bill in the name of the client or any other document prescribed by the regulatory authorities.
b. In case of corporates, one certified copy of the following documents must be obtained:
  • Copy of the Registration/Incorporation Certificate
  • Copy of the Memorandum & Articles of the Association
  • Copy of the PAN card for the Company and the Directors
  • Copy of the last three audited Annual Statements of the corporate client
  • Latest Net worth Certificate
  • Latest Income Tax return filed.
  • Board Resolution for appointment of the Authorized Person who will operate the account.
  • Proof of address and identity of Authorized Person
  • Details of Share Holding Pattern
  • Copy of Form No. 32 (ROC) giving particulars of Board Of Directors.
c. In case of partnership firm one certified copy of the following must be obtained:
  • Registration certificate
  • Partnership Deed
  • PAN card of partners
  • POA granted to a partner or an employee of the firm to transact business on its behalf
  • Proof of identity and address of the authorized person.
  • Telephone bill in the name of firm / partner
  • Annual statement/returns of the partnership firm
d. In case of a Trust, one certified copy of the following must be obtained:
  • Registration certificate
  • Trust Deed
  • PAN card
  • Authority Letter /Power of Attorney granted to transact business on their behalf
  • Any Officially valid documents to identify the Trustees, Settlers, beneficiaries and those holding POA, Founders / Mangers / Directors and their addresses o Resolution of the managing body of the foundation / association
  • Telephone Bill
e. In case of an NRI account- Repatriable /non-repatriable, the following documents are required:
  • Copy of the PIS permission issued by the bank
  • Copy of the passport
  • Copy of PAN card
  • Proof of overseas address and Indian address
  • Copy of the bank statement
  • Copy of the demat statement
  • If the account is handled through a mandate holder, copy of the valid PoA/mandate
7. Risk Profiling of the Client
7.1. 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.
7.2. In order to achieve this objective, all clients of the branch should be classified in the following category:
Category A - Low Risk
Category B - Medium Risk
Category C - High risk
7.2.1. Category A – Clients are those pose low or nil risk. They are good Corporates / HNIs who have a respectable social and financial standing. These are the clients who make payment on time and take delivery of shares belonging to blue chip companies or high growth stocks and have sound knowledge and study of the markets. They are also those clients who have been trading with us for 5 years or more and whose payment and delivery is always on time. Clients dealing in Futures & Options segment and who believe in maintaining extra credit balances or 100% cash as margin money are dealt in this category.
7.2.2. Category B - Clients are those who are intraday clients or speculative clients. Clients who tend to deal more in Futures and Options segment only though they may be accurate in payment of margins are classified in this category. These are the clients who maintain running account with CFS. Clients who tend to rotate delivery based mid-cap or small-cap stocks are also in this category as these stocks are volatile in nature.
7.2.3. Category C - Clients are those who have defaulted in the past, have suspicious background, do not have any financial status, etc. Clients who trade intra-day and deal at more than one brokerage house and have many Bank Accounts to our knowledge. Such clients also have cheque bouncing history. Clients of Special Category as given in Para 6.5 above are also sometimes classified in this Category.
7.3. We have to be careful while monitoring the transactions of B category clients and extremely careful in case of C category clients.
7.4. 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.
7.5. Any change in the risk profile of the client / mandate holder, has to be ascertained by the concerned branch officials, and reported to the Business Head immediately.
8. Suspicious Transactions
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.
8.1 Reasons for Suspicious:
Identity of client
• False identification documents
• Identification documents which could not be verified within reasonable time
• Non face to face client
• Clients in high-risk jurisdiction
• Doubt over the real beneficiary of the account
• Accounts opened with names very close to other established business entities
Suspicious Background
• Suspicious background or links with criminals
Multiple Accounts
• Large number of accounts having a common parameters such as common partners / directors / promoters / address/ email address / telephone numbers introducer or authorized signatory
• Unexplained transfers between such multiple accounts.
Activity in Accounts
• Unusual activity compared to past transactions
• Use of different accounts by client alternatively
• Sudden activity in dormant accounts
• Activity inconsistent with what would be expected from declared
Nature of Transactions
• Unusual or unjustified complexity
• No economic rationale or bonafied purpose
• Source of funds is doubtful
• Purchases made on own account transferred to a third party through an off market transactions through DP account
• Transactions reflect likely market manipulations
• Suspicious off market transactions
Value of Transactions
• Value just under the reporting threshold amount in an apparent attempt to avoid reporting
• Large sums being transferred from overseas for making payments
• Inconsistent with the clients apparent financial standing
• Inconsistent in the payment pattern by client
8.2. What to Report
• The nature of the transactions
• The amount of the transaction and the currency in which it was denominated
• The date on which the transaction was conducted: and
• The parties to the transaction
• The reason of suspicion.
9. Designated Principal Officer
In case any further information / clarification is required in this regard, the Principal Officer may be contacted:
Mr C S Chaudhry, Director,
CFS Financial Services Private Limited
F-12, Green Park Main,
New Delhi – 110016.
Tel: 011 – 26527253 – 57; Fax: 011 - 26852812
Email: csc@cfstradecity.in
10. Employee’s Hiring / Employee’s Training / Investor Education
10.1 Hiring of Employee
Adequate screening procedures are in place to ensure high standards when hiring employees.
10.2 Employees’ Training
We conduct employee training programme so that our members of the staff are adequately trained in AML and CFT procedures. Training requirements are specifically focused on Frontline Staff, Back Office staff, Compliance staff, risk management staff and staff dealing with new clients.
10.3 Investor Education
Periodically we use to collect documents as evidencing source of funds / income tax returns / bank records etc. At the collection of these documents we us to inform our clients about AML and CFT framework.
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Client Registration Documents in Vernacular Languages

Attention Investors: “Prevent Unauthorized transactions in your account . Update your Mobile number and Email Id with your Stock Broker and Depository Participant . Receive information of your transactions directly from Exchange and Depository on your registered mobile / email at the end of the day .......... Issued in the interest of investors"

Attention Investors: "Prevent Unauthorised transactions in your account. Update your mobile numbers/email IDs with your stock brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day .......... Issued in the interest of investors"

Attention Investors: "Prevent Unauthorized transactions in your demat account --> Update your Mobile Numbers with your Depository Participant. Receive alerts on your Registerd Mobile for all debit and other important transactions in your demat account directly from NSDL on the same day...issued in the interest of investors"

Attention Investors: "KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.

Attention Investors: "No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

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