The Finance Ministry amended the Prevention of Money Laundering (Maintenance of Records) Rules to broaden the scope of Know Your Customer (KYC) standards to include Politically Exposed Persons (PEPs), non-profit organisations (NPOs), and those dealing in virtual digital assets (VDAs) as reporting entities.
Who are Politically Exposed Individuals (PEI)?
- PEPs are individuals who have been entrusted with prominent public functions by a foreign country, according to the Finance Ministry’s modified PML Rules.
- Heads of state or governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned enterprises, and key political party officials are all included.
- Banks and financial institutions must keep records of PEP financial transactions and share them with the Enforcement Directorate when requested.
Other significant changes made
Keeping track of NPO/NGOs’ financial transactions
- Financial institutions must register the details of their NGO clients on the Niti Aayog’s Darpan portal.
- They must keep the record for five years after the business relationship between a client and a reporting entity ends or the account is closed, whichever comes first.
Beneficial owners’ definition is being tightened
- The PMLA rules have been amended to tighten the definition of beneficial owners under the anti-money laundering law.
- According to the amendments, any individual or group with 10% ownership in a’reporting entity’s client is now considered a beneficial owner, as opposed to the previous 25% ownership threshold.
- Banks and financial institutions, real estate and jewellery firms, casino intermediaries, and crypto or virtual digital assets are among the reporting entities.
Information gathering from clients
- Under anti-money laundering legislation, reporting entities such as banks and cryptocurrency platforms are required to collect information from their clients.
- Previously, these entities were required to keep KYC details or records of documents proving their clients’ identities, as well as account files and business correspondence relating to clients.
- They will now be required to collect information about their clients’ registered office address and principal place of business.
- Furthermore, they are required to keep a record of all transactions, including cash transactions exceeding Rs 10 lakh.
Why is this being done?
- FATF assessment: The amendments are significant in light of India’s proposed FATF assessment, which is expected later this year.
- Risk-management systems: One of the FATF’s 40 recommendations is that financial institutions have risk-management systems in place to identify domestic and international PEPs.
- Remove ambiguities: The overarching goal is to achieve legal uniformity and eliminate ambiguities prior to the FATF assessment.
Source: https://www.dittmar.fi/insight/update-on-the-reform-of-anti-money-laundering-legislation/