Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets

Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets

Arrangement of Guidelines

1. Citation
2. Interpretation
3. Responsibility of the board and management
4. Risk based approach
5. Customer identification
6. Customer due diligence
7. Record keeping
8. New technology and non-face-to-face transactions
9. Foreign branches and subsidiaries
10. Suspicious transactions
11. Reporting requirements
12. The role of the capital markets authority
13. Continuous monitoring
14. Internal policies, compliance and training
15. Audit
16. Tipping off
17. Reliance on third parties
18. Combating the financing of terrorism Appendix I: Indicators of potential money laundering activities in the capital markets

1. Citation

1. These Guidelines may be cited as the Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets, 2015.

2. Interpretation

(1) In these Guidelines, unless the context otherwise requires— "Act" means the Proceeds of Crime and Anti-Money Laundering Act, 2009; "AML" means anti-money laundering; "Authority" means the Capital Markets Authority; "CDD" means customer due diligence; "CIS" means collective investment scheme; "EDD" means enhanced due diligence; "Financial Action Task Force" means the intergovernmental body established in 1989 by ministers of member jurisdictions, representing most major international financial centers to set standards and promote effective implementation of legal, regulatory and operational measures from combating money laundering, terrorist financing and other related threats to the integrity of the international financial system; "Financial Reporting Centre" means the Centre established under section 21 of the Act; "market intermediary" means a person approved or licensed to transact business by the Capital Markets Authority under Part IV of the Capital Markets Act; "Regulations" means the Proceeds of Crime and Anti-Money Laundering Regulations, 2013; and "terrorism financing" includes the offence specified under section 5 of the Prevention of Terrorism Act, 2012.

2.2 General Description of money laundering and terrorist financing

(1) Despite the variety of methods employed, the money laundering process is accomplished in three stages. These stages, described below, may comprise of numerous transactions by the persons engaged in money laundering that could alert an institution of the criminal activity. (a) Placement – A person engaged in money laundering introduces his or her illegal profits into the financial system; (b) Layering – In this phase, the person engaged in money laundering engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channeled through the purchase and sales of investment instruments; (c) Integration – This is the provision of apparent legitimacy to criminally derived wealth. If the layering process has succeeded, an integration scheme places the laundered proceeds back into the legitimate economy in such a way that they re-enter the financial system appearing as normal business funds.

3. Responsibility of the Board and management

(1) The Board of directors of a market intermediary shall be responsible for the (a) establishment of appropriate policies and procedures for the detection and prevention of money laundering and terrorist financing and ensuring their effectiveness; and (b) the market intermediary’s compliance with these Guidelines, the Proceeds of Crime and Anti Money Laundering Act, 2009, and all other legal and regulatory requirements thereto. (2) A market intermediary shall formulate and implement internal controls and other procedures that will deter criminals from using its facilities for money laundering and terrorist financing and ensure that business is conducted in conformity with the law and high ethical standards and that service is not provided where there is good reason to suppose that transactions are associated with money laundering activities or terrorist financing. (3) A market intermediary shall co-operate fully with law enforcement agencies and relevant regulatory bodies, and shall take appropriate measures to disclose information to the Financial Reporting Centre and other enforcement agencies. (4) A market intermediary shall review its policies, procedures and controls at least once in every two years to ensure their effectiveness as required by the Regulations.

4. Risk- Based Approach

(1) Where customers are assessed to be of higher money laundering risk, a market intermediary shall take enhanced measures to manage and mitigate those risks. Where the risks are lower, simplified measures may be applied. Simplified measures include reducing the frequency of customer identification updates or reducing the degree of ongoing monitoring and scrutinizing transactions, based on a reasonable monetary threshold. (2) A market intermediary shall identify, assess and take effective action to mitigate money laundering risks and adopt a holistic approach to the Risk Based Approach and should avoid a silo approach when assessing the relationship between risks. (5) A market intermediary shall keep records and relevant documents of the risk assessment for a minimum of seven years from their official date of creation or issuance.

5. Customer Identification

(1) A market intermediary shall obtain satisfactory evidence of the identity and legal existence of the persons applying to do business with it. The evidence shall be verified by reliable documents or other verifiable and independent means.

6. Customer due diligence

(1) A market intermediary shall conduct ongoing due diligence and scrutiny of customers’ identity and their investment objectives. This shall be done throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the market intermediary’s knowledge of the customer, its business and its risk profile.

7. Record Keeping

(4) A market intermediary shall maintain and keep records of all transactions for a minimum period of seven years from the date the relevant business or transaction was completed or following the termination of an account or business relationship.

8. New technology and non-face-to-face transactions

(1) A market intermediary shall establish policies and procedures to address any specific risks associated with the use of new technology and non-face-to-face business relations or transactions, and these shall be documented and be easily accessible to the employees of the market intermediary.

10. Suspicious transactions

(2) If a market intermediary becomes aware of suspicious activities or transactions which indicate possible money laundering activities, the market intermediary shall report the same to the Financial Reporting Centre immediately or in any case within seven days of the date of the transaction or occurrence of the activity that is considered suspicious.

11. Reporting requirements

11. A market intermediary shall report to the Financial Reporting Centre all cash transactions carried out by it, equivalent to or exceeding USD 10,000 or its equivalent in any other currency whether or not the transaction appears to be suspicious.

14. Internal policies, compliance and training

(1) A market intermediary shall develop, adopt and implement internal programmes, policies, procedures and controls to prevent and detect any offence under the Act.