Compliance · 12

Policy & Guidelines on Anti-Money Laundering (AML)

FOR RESEARCH ANALYST SAUMYA AGARWAL

About Saumya Agarwal

RA Saumya Agarwal is a SEBI registered Research Analyst vide registration number INH000027496.

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.

Under the recommendation made by the Financial Action Task Force on Anti Money Laundering standards, SEBI had issued the guidelines on Anti Money Laundering standards vide their notification no. SEBI/HO/MIRSD/DOS3/CIR/P/2018/104 dated July 04, 2018, ISD/CIR/RR/AML/1/6 dated 18th January 2006, and vide letter no. ISD/CIR/RR/AML/2/6 dated 20th March 2006 had issued the obligation on Intermediaries registered under section 12 of the Securities and Exchange Board of India Act, 1992. As per the 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.

RA Saumya Agarwal has formulated this policy of PMLA and effective AML program to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities or flow of illegal money or hiding money to avoid paying taxes. Money Laundering can be defined as engaging in financial transactions that involve income derived from criminal activity, transactions designed to conceal the true origin of criminally derived proceeds and appears to have been received through legitimate sources/origins.

Applicability

These policies and procedures apply to all employees and affiliates of RA Saumya Agarwal as per the statutory provisions and are to be read in conjunction with the existing guidelines. The following procedures have been established to ensure that all employees know the identity of their customers and take appropriate steps to combat money laundering incidents.

Objective

The objective of this policy framework is to:

• Create awareness and provide clarity on KYC standards and AML measures.
• Have a proper Customer Due Diligence (CDD) process before registering clients.
• Monitor and maintain records of all cash transactions of the value of more than INR 10 lac.
• Maintain records of all series of integrally connected cash transactions within one calendar month.
• Monitor and report suspicious transactions.
• Discourage and identify money laundering or terrorist financing activities.
• Take adequate and appropriate measures to follow the spirit of the PMLA.

Principal Officer

Saumya Agarwal is the Principal Officer, responsible for overseeing the implementation of this Policy. Employees shall refer all matters concerning the issues covered by this Policy to the Principal Officer and shall act in accordance with the Principal Officer's instructions on this behalf. All submissions required to be made by employees in terms of this Policy shall be addressed to the Principal Officer. The Principal Officer shall be responsible for maintaining and updating all records in accordance with this Policy or an applicable law/regulation.

Policy & Procedures to Combat Money Laundering and Terrorist Financing

RA Saumya Agarwal has resolved that it would, as an internal policy, take adequate measures to prevent money laundering and shall put in place a framework for identifying, monitoring, and reporting suspected money laundering or terrorist financing transactions to FIU as per the guidelines of PMLA Rules, 2002. RA Saumya Agarwal shall regularly review the policies and procedures on PMLA and Terrorist Financing to ensure their effectiveness.

Implementation of the Policy

The Principal Officer is to ensure overall compliance with the obligations imposed under the PML Act and the Rules. The Principal Officer will ensure the filing of necessary reports with the Financial Intelligence Unit (FIU–IND). The Principal Officer shall act as a central reference point in facilitating onward reporting of suspicious transactions and shall play an active role in the identification and assessment of potentially suspicious transactions.

Aspects of the Policy

Obtaining sufficient information about the client in order to identify who is the actual beneficial owner of the securities or on whose behalf the transaction is conducted. The beneficial owner is the natural person or persons on whose behalf a transaction is being conducted, including those who exercise ultimate effective control over a legal person or arrangement.

Verify the customer's identity using reliable, independent source documents, data, or information. Conduct ongoing due diligence and scrutiny of the account/client to ensure that the transactions conducted are consistent with the client's background/financial status, activities, and risk profile.

The Customer Due Diligence Process includes three specific parameters:

• Policy for Acceptance of Clients
• Client Identification Procedure
• Suspicious Transactions identification & reporting

Customer Acceptance Policy

We will accept clients whose identity we are able to verify as per the government guidelines. Either the client should visit the office/branch or a concerned official may visit the client at their residence/office to get the necessary documents filled in and signed. We may also use approved online modes/methods/standard practices to verify the identity and documents of prospective clients.

In case of accounts opened in the name of an NRI, where RA Saumya Agarwal cannot personally verify the NRI client, the KYC team shall ensure photocopies of all the KYC documents/proofs and PAN Card are attested by Indian Embassy or Consulate General in the country where the NRI resides, or as per the prevailing guidelines. The photocopies of the KYC documents and PAN Card should be signed by the NRI. If the NRI comes in person to open the account, the above attestation requirement may be waived.

Detailed search to be carried out to confirm that the client is not in the defaulters / negative list of regulators. RA Saumya Agarwal shall obtain complete information from the client. It shall be ensured that the initial forms taken from clients are filled in completely. All photocopies submitted by the client are checked against original documents without any exception. The 'Know Your Client' guidelines are to be followed without any exception. All supporting documents as specified by SEBI and Exchanges shall be obtained and verified.

We will not accept clients with identity matching persons known to have criminal background. We will check whether the client's identity matches with any person having known criminal background or is banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement/regulatory agency worldwide.

The KYC team shall check the following sites (not exhaustive) before admitting any person as a client:

• FATF
• UN Security Council consolidated list
• Watchout Investors
• Data available on SEBI and other relevant enforcement sites
• Any other database available at the prevailing time

Clients of Special Category

We are very careful when accepting clients of special categories like:

• Non-Resident clients
• High net-worth clients (clients having an annual income of INR 25 Lac or more, or a net worth of Rs. 10 Crore or more)
• Trust, Charities, Non-Governmental Organizations (NGOs), and organizations receiving donations
• Companies having close family shareholdings or beneficial ownership
• Politically Exposed Persons (PEPs) — individuals who are or have been entrusted with prominent public functions in a foreign country (Heads of State or Government, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials); also applied to family members or close relatives of PEPs
• Companies offering foreign exchange
• Clients in high-risk countries — where the existence/effectiveness of money laundering controls is suspect, unusual banking secrecy, countries active in narcotics production, countries with high corruption (Transparency International Corruption Perception Index), countries under government sanctions, countries reputed as sponsors of international terrorism, offshore financial centres, tax havens, or where fraud is highly prevalent
• Clients with dubious reputation as per public information available
• Persons of foreign origin, companies with closed shareholding/ownership, companies dealing in foreign currency, shell companies, overseas entities

Guidelines on Identification of Beneficial Ownership

For non-individual customers, as part of the due diligence measures, sufficient information must be obtained 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 should be identified and verified using client identification and verification procedures as early as possible. The beneficial owner is the natural person or persons who ultimately own, control, or influence a client and/or persons on whose behalf transactions are being conducted.

Client registration forms suspected to be fictitious shall not be accepted. No account shall be opened in a fictitious/benami or anonymous basis. Mandatory information/documents shall not be compromised. Accounts shall be opened only on receipt of mandatory information and authentic supporting documents per regulatory guidelines. Where a client refuses to provide information/documents, the client shall be rejected.

Customer Identification Procedure

To establish the identity of the client along with firm proof of address to prevent the opening of any account which is fictitious/benami/anonymous in nature.

Documents that can be relied upon

• PAN Card: PAN card is mandatory and is the most reliable document, as only one card is issued to an individual and its genuineness can be independently checked through the IT website.
• Address Proof: Voter's Identity Card, Passport, Bank Statement, Aadhaar Letter, Ration card, latest Electricity/telephone bill in the name of the client.

Documents to be obtained for new clients

*List is for illustration purposes. Actual need of documents will depend on prevailing guidelines.*

Money Laundering Risk Assessments

Risk assessment on money laundering depends on the kind of customers the RA deals with. Risks are increased if money launderers can hide behind corporate structures such as limited companies, offshore trusts, special purpose vehicles, and nominee arrangements. The Risk Assessment is required to assess and take effective measures to mitigate money laundering and terrorist financing risk with respect to clients, countries or geographical areas, nature and volume of transactions, and payment methods. The risk assessment shall also take into account country-specific information circulated by the Government of India and SEBI, as well as the updated list of sanctioned individuals and entities under various UN Security Council Resolutions.

Risk Classification

The level of money-laundering risk depends on: type of customer and nature of business; type of product/service availed; and country where the customer is domiciled. Customers are classified into High Risk, Medium Risk, and Low Risk.

This list is indicative only and will depend on various other factors at the time of evaluation, including the trading pattern, payment pattern, financial status, and background of the client. RA Saumya Agarwal will conduct periodical review of risk categorisation — at least once in six months for high-risk clients and once a year for medium/low-risk clients.

Safeguards while accepting clients

• No account shall be opened in a fictitious/benami or anonymous basis.
• Risk perception shall be defined considering client's location, nature of business, manner of payment, and KYC documentation.
• Where appropriate due diligence/KYC cannot be applied, the account shall not be opened.
• Necessary checks shall be performed before opening an account to ensure the client's identity does not match any person with known criminal background.

For New Clients

• Client may be met in person or through online verification per regulatory guidelines before accepting KYC.
• Verify PAN details on the Income Tax website.
• All documentary proofs given by the client shall be verified with originals.
• Obtain latest Income Tax returns, annual accounts, etc. to ascertain financial status; obtain additional information if needed.
• Ensure KYC documents are properly filled, signed, and dated.
• If the client does not provide required information, do not open the account.

For Existing Clients

• Keep updating the client's financial status (latest ITR, net-worth certificate, annual accounts).
• Update client details (address, contact number, demat details, bank details) regularly.
• Periodically verify the client's identity against criminal/defaulter databases.
• Scrutinise records of clients of special category and review transactions on an ongoing basis.

Monitoring of Transactions

• RA Saumya Agarwal regularly monitors transactions to identify any deviation in activity, ensuring the effectiveness of AML procedures.
• Special attention shall be paid to unusually large transactions or patterns with no apparent economic purpose.
• Internal threshold limits may be specified for each class of client account and transactions exceeding such limits shall be scrutinised.
• The background, documents, office records, memos, and clarifications relating to such transactions shall be examined and findings recorded in writing. Findings, records, and related documents shall be made available to auditors and to SEBI/stock exchanges/FIU-IND/other authorities during inspection or as required. Such records shall be maintained and preserved for a period of five years from the date of transaction as required under PMLA.

Cash Transactions

Cash shall not be accepted from clients, whether against obligations or as margin or otherwise. All payments shall be received from clients strictly by account-payee crossed cheques drawn in favour of RA Saumya Agarwal, as required by SEBI circular no. SMD/ED/IR/3/23321 dated November 18, 1993 and SEBI/MRD/SE/Cir-33/2003/27/08 dated August 27, 2003.

If an account-payee cheque is received from a bank account other than that captured in records, it may be accepted after ascertaining that the client is the first holder of that account. In exceptional cases, bank draft/pay-order may be accepted provided the identity of the remitter/purchaser on the draft matches the client; otherwise a certificate shall be obtained from the issuing bank.

Reliance on a third party for Client Due Diligence

RA Saumya Agarwal may rely on a third party for: identification and verification of a client's identity; determining whether the client is acting on behalf of a beneficial owner and identifying the beneficial owner; and verifying the identity of the beneficial owner. The third party must be regulated, supervised or monitored and have CDD and record-keeping measures in line with PML Act obligations. RA Saumya Agarwal shall remain ultimately responsible for CDD and any enhanced due diligence measures.

Record Keeping

RA Saumya Agarwal shall ensure compliance with the record-keeping requirements contained in the SEBI Act, 1992, its Rules and Regulations, PMLA, and other relevant legislation. Records shall be maintained for transactions prescribed under Rule 3 of the PML Rules, including:

• All cash transactions of value above ten lakh rupees (or equivalent in foreign currency).
• All series of integrally connected cash transactions individually below ten lakh rupees where the monthly aggregate exceeds ten lakh rupees.
• All cash transactions involving forged or counterfeit notes, or forgery of a valuable security/document.
• All suspicious transactions, whether or not in cash.

Retention of Records

• Records on transactions (domestic and international) shall be maintained for a minimum period of ten years from the date of cessation of the transaction.
• Records on customer identification (passports, identity cards, driving licenses), account files, books of account, and business correspondence shall also be kept for ten years.
• Records shall be maintained in both hard and soft copies.
• Continuity in dealing with the client shall be maintained as normal until told otherwise; the client shall not be told of the report/suspicion. In exceptional circumstances, consent may not be given to continue to operate the account.
• Appropriate steps shall be taken to evolve an internal mechanism for proper maintenance and quick retrieval of records by competent authorities.

Suspicious Transactions Monitoring and Reporting

RA Saumya Agarwal, on an ongoing basis, monitors transactions to ascertain whether they are "suspicious" and to be reported to FIU-India.

Suspicious transactions are those which:

• Give rise to a reasonable ground of suspicion of involvement of proceeds of crime;
• Appear to be made in circumstances of unusual or unjustified complexity;
• Appear to have no economic rationale or bona fide purpose.

Criteria for ascertaining suspicious transactions

• Clients whose identity verification is difficult (including non-cooperation).
• Clients belonging to or introduced by entities in high-risk countries.
• Sudden increase in client's business without justification; turnover not commensurate with financials.
• Unusual large cash deposits.
• Overseas receipts/payments with or without instructions to pay in cash.
• Transfer of proceeds to unrelated parties.
• Negotiated/matched trades.
• Clients making huge and regular losses but still placing trades, and source of funds unclear.
• Asset management services where the source of funds is unclear or not in keeping with the client's apparent standing.
• Unusual transactions by Clients of Special Category.

Records of Information Reported to the Director, FIU-IND

RA Saumya Agarwal shall maintain and preserve records of information related to transactions, whether attempted or executed, which are reported to the Director, FIU-IND, as required under Rules 7 and 8 of the PML Rules, for a period of five years from the date of the transaction.

List of Designated Individuals/Entities

An updated list of individuals and entities subject to UN sanctions (freezing of assets/accounts, denial of financial services, etc.) can be accessed at the UN Security Council Committee website. RA Saumya Agarwal ensures that accounts are not opened in the name of anyone on the list, and shall continuously scan all existing accounts. Full details of any account bearing resemblance shall be immediately intimated to SEBI and FIU-IND.

Procedure for freezing of funds, financial assets or economic resources

Section 51A of the Unlawful Activities (Prevention) Act, 1967 (UAPA) — brought into effect through the UAPA Amendment Act, 2008 — empowers the Central Government to freeze, seize or attach funds and other financial assets or economic resources held by, on behalf of, or at the direction of listed individuals or entities, or any other person suspected of engaging in terrorism. RA Saumya Agarwal shall ensure expeditious implementation of the procedure laid down in the UAPA Order dated August 27, 2009 and the order dated 2nd February, 2021, and SEBI circular SEBI/HO/MIRSD/DOP/CIR/P/2021/36 dated March 25, 2021.

Reporting to Financial Intelligence Unit – India

In terms of the PML Rules, RA Saumya Agarwal is required to report information relating to cash and suspicious transactions to the Director, FIU-IND at:

RA Saumya Agarwal shall carefully follow all reporting requirements and formats available on the FIU-India website (Section: Obligation of Reporting Entity – Furnishing Information – Reporting Format).

Adherence

• The Cash Transaction Report (CTR), wherever applicable, for each month shall be submitted to FIU-IND by the 15th of the succeeding month.
• The Suspicious Transaction Report (STR) shall be submitted within 7 days of arriving at a conclusion that any transaction (cash or non-cash) or series of integrally connected transactions is suspicious. The Principal Officer shall record reasons for treating a transaction as suspicious. There shall be no undue delay.
• The Non-Profit Organization Transaction Reports (NTRs) for each month shall be submitted to FIU-IND by the 15th of the succeeding month.
• The Principal Officer will be responsible for timely submission of CTR, STR and NTR.
• Utmost confidentiality shall be maintained in filing CTR, STR and NTR.
• No nil reporting needs to be made to FIU-IND if there are no cash/suspicious/non-profit-organization transactions.

RA Saumya Agarwal shall not put any restrictions on operations in accounts where an STR has been made. RA Saumya Agarwal and its officers and employees shall be prohibited from disclosing ("tipping off") the fact that an STR or related information is being reported. This prohibition extends to before, during, and after submission. RA Saumya Agarwal, irrespective of the amount of transaction and/or threshold limit envisaged for predicate offences under PMLA, shall file an STR if there are reasonable grounds to believe the transactions involve proceeds of crime.

Designation of Officers for Ensuring Compliance with PMLA

Appointment of a Principal Officer

To ensure that RA Saumya Agarwal properly discharges its legal obligations to report suspicious transactions, the Principal Officer acts as a central reference point in facilitating onward reporting and shall have access to and be able to report to senior management at the next reporting level.

Saumya Agarwal is appointed as Principal Officer. Details of the appointment have been intimated to FIU-IND. Names, designation and addresses (including email addresses) of the Principal Officer, including any changes, shall also be intimated to the Office of the Director-FIU. The Principal Officer is in a sufficiently senior position and able to discharge the functions with independence and authority.

Employees' Hiring, Training, Investor Education

Hiring: RA Saumya Agarwal shall have adequate screening procedures when hiring employees, identifying key positions with regard to ML/TF risk and the size of business, and ensuring incumbents are suitable and competent.

Training: RA Saumya Agarwal has an ongoing employee training program so that staff are adequately trained in AML, CFT and other relevant procedures, with specific focus for frontline staff, back-office staff, compliance staff, risk management staff, and staff dealing with new clients. Training will include case studies and examples relevant to the securities market.

Investors Education

Implementation of AML measures requires RA Saumya Agarwal to demand certain information from investors which may be of personal nature or has hitherto never been called for. This includes documents evidencing source of funds, income-tax returns, bank records, etc. There is a need to sensitise clients about these requirements as the ones emanating from AML frameworks and CFT. RA Saumya Agarwal shall prepare specific literature/pamphlets to educate clients on the objectives of the AML program, to be displayed on the website.

Additional Values

• Ensure that the content of these Directives is understood by all staff members.
• Regularly review the policies and procedures for the prevention of AML on an annual basis. The reviewer shall be different from the person who framed the policy.
• Adopt client acceptance policies and procedures that are sensitive to the risk of AML.
• Undertake Client Due Diligence (CDD) measures sensitive to the AML risk depending on the type of client, business relationship, or transaction.
• Maintain a system for identifying, monitoring, and reporting suspected ML/TF transactions to law-enforcement authorities.
• Develop staff members' awareness and vigilance to guard against ML and TF.
• Risk-Based Approach: Classify clients into Low, Medium, and High risk categories based on nature of business, geographic location, products/services used, and transaction patterns. Apply Enhanced Due Diligence (EDD) for high-risk clients including PEPs and non-resident clients from high-risk jurisdictions.
• Enhanced Due Diligence (EDD): For high-risk clients, additional information shall be collected and verified, including source of funds/wealth; transactions shall be subject to enhanced monitoring; periodic review frequency shall be higher.
• Data Protection & Confidentiality: Ensure secure storage of all KYC and transaction data, with access restricted to authorised personnel only. Data will be protected in compliance with applicable privacy laws.

Designated Principal Officer

In compliance with SEBI guidelines and as per SEBI Master Circular dated June 06, 2024, Saumya Agarwal has been appointed Principal Officer. The Principal Officer shall be responsible for implementing and enforcing the AML/CFT framework, monitoring transactions, and filing STRs with FIU-IND. For any further information/clarification, the Principal Officer may be contacted.