ECB NBFC & Spectrum amended w.e.f December 2009 & others applicable from 1st January 2010 – RBI FEMA Notification

On a review of the prevailing macroeconomic conditions and developments in international financial markets, it has been decided to modify some aspects of the ECB policy as indicated below:

AMENDMENTS WITH IMMEDIATE EFFECT

(i) ECB for the NBFC Sector

As per the current ECB norms, Non-Banking Finance Companies (NBFCs), which are exclusively involved in the financing of the infrastructure sector, are permitted to avail of ECBs from multilateral / regional financial institutions and Government owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the approval route.  In view of the thrust  given to development of infrastructure sector, it has been decided with immediate effect to allow NBFCs exclusively involved in financing the infrastructure projects to avail of ECB from the recognized lender category including international banks under the approval route, subject to complying with the prudential standards prescribed by the Reserve Bank and the borrowing entities fully hedging their currency risk. The AD Category-I bank should certify the compliance with the prudential norms by the borrowing NBFCs.

(ii) ECB for Spectrum in the Telecommunication Sector

As per the extant policy, as indicated in A.P. (DIR Series) Circular No. 26 dated October 22, 2008, payment for obtaining license/permit for 3G Spectrum is considered an eligible end - use for the purpose of ECB under the automatic route. It has now been decided to permit eligible borrowers in the telecommunication sector to avail of ECB for the purpose of payment for Spectrum allocation. This modification will come into effect with immediate effect.

AMENDMENTS WITH EFFECT FROM 1ST JANUARY 2010

(i) All-in-cost ceilings

As per the extant policy, the all-in-cost ceilings have been dispensed with, under the approval route, until December 31, 2009. In view of the improvement in the credit market conditions and narrowing credit spreads in the international markets, it has been decided to withdraw the existing relaxation in the all-in-cost ceilings under the approval route with effect from January 1, 2010. Accordingly, the all-in-cost ceilings under the approval route for the ECBs, where Loan Agreements have been signed on or after January 1, 2010 will be as under:

Average Maturity Period	All -in-cost Ceilings over six month Libor*
3 – 5 years	300 basis points
Over 5 years	500 basis points

*for the respective currency of borrowing or applicable benchmark.

Eligible borrowers proposing to avail of ECB after December 31, 2009, where the Loan Agreement has been signed on or before December 31, 2009 and where the all-in-cost exceed the above ceilings, should furnish a copy of the Loan Agreement. Such proposals would continue to be considered under the approval route.

(ii) Integrated township

As per the extant policy, corporates, engaged in the development of integrated township, as defined in Press Note 3 (2002 Series) dated January 04, 2002, issued by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India are permitted to avail of ECB, under the approval route, until December 31, 2009. On a review of the prevailing conditions, it has been decided to extend the current policy until December 31, 2010, under the approval route. All other terms and conditions, stipulated in the A.P. (DIR Series) Circulars referred to above, remain unchanged.

iii) Buyback of the Foreign Currency Convertible Bonds (FCCBs)

In terms of A.P. (DIR Series) Circular No. 39 dated December 8, 2008, read with A.P. (DIR Series) Circular No. 58 dated March 13, 2009 and A.P. (DIR Series) Circular No. 65 dated April 28, 2009, Indian companies have been allowed to buyback their Foreign Currency Convertible Bonds (FCCBs) both under the automatic route and approval route until December 31, 2009. Keeping in view the prevailing macroeconomic conditions and global developments, especially the improvements in the stock prices, it has been decided to discontinue the facility with effect from January 1, 2010.

Source: RBI/2009-10/252 A.P. (DIR Series) Circular No.19 dated 9th December 2009

Consumer Protection & MRTP cases for CS Executive Program/Final exams, interesting read and All the best for December exams 2009

For the world, its the expectation of Christmas week & the New Year Celebrations!!! (but for the blessed few: those who are appearing for Company Secretary exams).

CS Final (Old Syllabus) and CS Executive Program Students do read the recent Economic Law cases as compiled by Mr. Ankur Garg and published here: http://www.caclubindia.com/articles/article_list_detail.asp?article_id=3851

Yehseeyes wishes all the very best for your December 2009 exams.  As of now, forget other things, just remember the following,

1. Read again what you have read before (called as Revision) which is a must to remember atleast something.
2. Fear not for the exams.  Be confident as it is supposed to be faced that way!
3. Have your Hall Ticket, you can take prints also from the link http://icsi.edu/Student/Queries/tabid/1587/Default.aspx and then click “Admit Card Extract Link”, which also requires you to register with www.icsi.in (take print & keep spare copy to avoid last minute misplacement).
4. Keep ready smart writing pens.  Never go for fancy colour inks.  Blue is excellent, at places and rarely you may add it up with Black.
5. Focus on the Questions more in the exam.  Whether it is law or issues or problems, it requires lot of understanding before giving the solutions. 

Its Only This Much.  Hi Only This Much book readers for Company Secretary exams, waiting for your constructive feedbacks (onlythismuch@lawlabz.com) to make CS studies more exciting.

Again wishing you all the best!!! Finish the exams and then we will discuss, what next!!! forget the world, its your exams now…

Manufacturing Enterprise is same as Industry or Industrial Undertaking (SSI) as the Act uses enterprise for both manufacturing & service – MSME Clarifies

The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) uses the terminology enterprise for the establishments engaged in manufacturing sector as well in service sector.  Therefore, the present terminology “manufacturing enterprise” should be considered as equivalent to the term “industry” or industrial undertaking”, which was used earlier in the definition of Small Scale Industries (SSI).  The establishment engaged in services are termed as “Service Enterprises” in the MSMED Act, 2006.

Source: 16(20)/1/2009-MSME POL dated 5th November 2009

As you know [MSMED]Small Scale Industry definition only under MSMED Act for IDRA too.

To understand all the notifications of industry, read Industries DIPP updates

Now, read in mail Subscribe to Blog

NFE shall be calculated in rupees for SEZ unit approval, fluctuations may be considered, if negative – Ministry Clarification

F.No.C.6/9/2009-SEZ dated November 2009 under Ministry of Commerce & Industry as Instruction No. 41

Sub: Clarification on calculation of NFE as per Rule 53 of the SEZ Rules, 2006

• It is hereby clarified that Net Foreign Exchange (NFE) is to be calculated in rupee terms only.
• In case a unit is NFE negative and claims that it is due to foreign exchange fluctuation, the Approval Committee may consider such cases provided that the unit gets the computations certified by the Authorised Bank, on a case to case, basis.

NOC to release 1% issue amount in SEBI circular and not in DIP/ICDR regulations now, application after 4 months of listing with 2 months for bank guarantee

SEBI - OIAE/Cir-1/2009 dated November 25, 2009

Sub: Issue of No Objection Certificate for release of 1% of issue amount

As per the Listing Agreement with the Stock Exchanges, the issuer company
deposits 1% of the issue amount of the securities offered to the public and/or to the holders of the existing securities of the company, as the case may be, with the designated stock exchange. This amount was being released to issuer companies after obtaining a No Objection Certificate (NOC) from SEBI in accordance with the SEBI (Disclosure and Investor Protection - DIP) Guidelines, 2000.  However, the same provisions had not been found in the amended SEBI (ICDR) Regulations, 2009 which has replaced DIP.  Hence, this circular is issued.

For the purpose of obtaining the NOC, the issuer company shall submit an application on its letter head addressed to SEBI in the format specified in Annexure – A, after lapse of 4 months from listing on the Exchange which was the last to permit listing. The application shall be filed by the post issue lead merchant banker with the concerned designated office of SEBI under which the registered office of the issuer company falls, as specified in Annexure – B. On the date of application, the bank guarantees, if any, included in 1% deposit must have a residual validity of at least 2 months.

SEBI shall issue the NOC after satisfying itself that the complaints arising from the issue received by SEBI against the Company have been resolved to its satisfaction, the Company has been submitting monthly Action Taken Reports on the complaints forwarded by SEBI to the company as per the proforma specified in Annexure – C, and the fees due to intermediaries associated with the issue process including ASBA Banks have been paid.

Debt Listing Agreement amendment & clarification requires Equity Listing Agreement compliance unless excluded by Debt Securities Regulations 2008

SEBI has introduced Simplified Debt Listing Agreement that prescribed norms for issue of public or privately placed debt securities and listing of such securities on the exchange and has also issued Clarification on applicability of SEBI Regulations/ Circulars on Initial and Continuous Disclosures for Convertible and Non-Convertible Debt.

Since Part-A of the Listing Agreement for debt is applicable for debt issuers with already listed equity, it is clarified that the covenants in the Equity Listing Agreement that require submission of a draft offer document to SEBI for observations or obtaining of an acknowledgement card are not applicable in case of an issue of debt securities which is made in terms of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

Now, SEBI vide SEBI/IMD/DOF-1/BOND/Cir-5/2009 dated 26th November, 2009 has amended the following in the Debt Listing Agreement:

(a). 100% Asset Cover: To align the Listing Agreement with the provisions of the Companies Act, 1956, the amended Listing Agreement requires issuers to maintain 100% asset cover sufficient to discharge the principal amount at all times for the debt securities issued. Further, to provide more information to investors, the periodic disclosures to the stock exchange shall now require disclosure of the extent and nature of security created and maintained.

(b). Submission of certificate on maintenance of security: As against half-yearly certifications on security cover in respect of listed secured debt securities, the amended Listing Agreement provides for submission of such certificates regarding maintenance of 100% asset cover, and the time limit of submission in respect of the last half year has been aligned with the option provided for submission of annual audited results at a later date. In addition to Banks and NBFCs being exempt from submitting such certificates, issuers of Government guaranteed bonds shall also be exempt.

(c). Statement on Use of Issue Proceeds: In order to enhance the quality of disclosures made to investors, issuers shall be required to furnish a statement of deviations in use of issue proceeds, if any, to the stock exchange on a half yearly basis. Also, the same is required to be published in the newspapers simultaneously with the half-yearly financial results.

(d). Deposit of 1% of issue proceeds: So as to ensure that the interest of investors investing in public issues of debt securities is protected, the issuer shall be required to deposit an amount calculated at 1% of the amount of debt
securities offered for subscription to the public. It is refundable or forfeitable in the manner stated in the Rules, Bye-laws and Regulations of the Exchange.

(e). Submission/ publication of Financial Statements: The time-lines for disclosure of financial statements have been aligned with the proposed changes to the Equity Listing Agreement. Accordingly, issuers would now have to publish/furnish to the Exchange, either audited half yearly financial statements or unaudited half yearly financial statements subject to a limited review within 45 days from the end of the half year. In case of the last half year, issuers may opt to submit their annual audited results in lieu of the unaudited financial results for the period, within 60 days from the end of the financial year.

Click here for detailed amendments in Part A & Part B of Debt Listing Agreement

Records to be maintained from transaction, Non profit organisation included, Suspicious transaction defined in amendment of Money Laundering Rules 2009

Notification No 13/2009/F.No. 6/8/2009- ES & G.S.R 816(E) dated 12th November 2009

Prevention of Money-laundering Act (PMLA), 2002 read with Rules is amended by Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries)  Amendment Rules, 2009

Rule 2(1)(ca) “non profit organisation” means any entity or organisation that is registered as a trust or a society under the Societies Registration Act, 1860 (21 of 1860) or any  similar State legislation or a company registered under section 25 of the Companies Act, 1956 (1 of 1956);

Rule 3(BA) all  transactions involving receipts by non-profit organisations of  value  more than  Rs. 10 lakh, or its equivalent in foreign currency; Kindly note, Rule 3 deals with Maintenance of records of transactions (nature and value) by banking company or financial institution or intermediary. [thus, covering Charitable trusts, whether temples, churches or mosques, non-government organisations (NGOs), educational institutions or societies and other Non-profit organisations, even Section 25 Company – see definition above]

Rule 6  Retention of records of transactions– The records referred to in rule 3 shall be maintained for a period of ten years from the date of [the word CESSATION OF is removed] transactions between the client and the banking company, financial institution or intermediary, as the case may be.  [Hence, the 10 year period begins from the date of transaction itself].

Rule 2(fa)  “Regulator” means a person or an authority or a Government which is vested with the power to license, authorise, register, regulate or supervise the activity of banking companies, financial institutions or intermediaries, as the case may be;

Rule 2(g)  “Suspicious transaction" means a transaction referred to in clause (h) [which defines the term transaction], including an attempted transaction, whether or not made in cash, which to a person acting in good faith -

(a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or

(b) appears to be made in circumstances of unusual or unjustified complexity; or

(c) appears to have no economic rationale or bonafide purpose; or

(d) gives  rise  to  a  reasonable  ground  of  suspicion  that  it may involve financing of the activities relating to terrorism;

Rule 8 after sub-rule (3),  the following proviso shall be inserted at the end, namely:-

“Provided that a banking company, financial institution or intermediary, as the case may be, and its employees shall keep the fact  of furnishing information in respect of transactions referred to in clause (D) of sub-rule (1) of rule 3 strictly confidential.  [Thus, the records of transactions are made STRICTLY CONFIDENTIAL!]

In rule 9,-
(a)   for sub-rules (1) and (2), the following sub-rules shall be substituted, namely:-

“(1) Every banking company, financial institution and intermediary, as the case may be, shall,

(a)  at the time of commencement of an account-based relationship, identify its clients, verify their identity and obtain information on the purpose and intended nature of the business relationship,  and

(b) in all other cases, verify identity while carrying out:

(i) transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a   single transaction or several transactions that appear to be connected, or

(ii)  any international  money transfer operations.

(1A) Every banking company, financial institution and intermediary, as the case may be, shall identify the beneficial owner and take all reasonable steps to verify his identity.

(1B) Every banking company, financial institution and intermediary, as the case may be, shall exercise ongoing due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the customer, his business  and risk profile.

(1C) No banking company, financial institution or intermediary, as the case may be, shall  keep any anonymous account or account in fictitious names.

(2) Where the client is an individual, he shall for the purpose of sub-rule (1), submit to the banking company, financial institution and intermediary, as the case may be, one certified copy of an ‘officially valid document’ containing details of his identity and address, one recent photograph and such other documents including in respect of the nature of business and financial status of the client as may be required by the banking company or the financial institution or the intermediary, as the case may be.

Provided that photograph need not be submitted by a client falling under clause (b) of sub-rule (1).”;

(b)   after sub-rule (6),  the following sub-rule shall be inserted, namely:-

“(6 A) Where the client is a  juridical person, the banking company, financial institution and intermediary, as the case may be, shall verify that any person purporting to act on behalf of  such client is so authorised and verify the identity of that person.”;

(c) for sub-rule (7), the following sub-rule shall be substituted, namely:-

“ (7) (i)The regulator shall issue guidelines incorporating the requirements of sub- rules (1) to (6A) above and may prescribe enhanced measures to verify the client’s identity taking into consideration type of client, business relationship or nature and value of transactions.

(ii) Every banking company, financial institution and intermediary as the case may be, shall formulate and implement a Client Identification Programme to determine the true identity of its clients, incorporating requirements of sub-rules (1) to (6A) and guidelines issued under clause (i) above.

Prevention of Money Laundering Act (PMLA), 2002 can be downloaded here.   Click here for SEBI Master circular on Money Laundering.

Accordingly, all authorized persons are advised to furnish Suspicious Transaction Report (STR) to FIU-IND in respect of their money changing activities within 7 days of arriving at a conclusion that a transaction, including attempted transaction, whether or not made in cash, or a series of transaction integrally connected are of suspicious nature. The formats of STR, both manual and electronic, have been made available by FIU-IND in their website http://fiuindia.gov.in. [A.P. (DIR Series) Circular No.15 & A.P. (FL/RL Series) Circular No.02 dated November 19, 2009]

More disclosures in ADR/GDR & double 5% creeping acquisition benefit is the amended Takeover Code – Understand here…

SEBI (Substantial Acquisition of Shares & Takeovers - SAST) Regulations, 1997 [Takeover Code] as amended by SEBI (SAST)
(Third Amendment) Regulations, 2009

vide F.No.LAD-NRO/GN/2009-10/20/182131 dated 6/11/2009

In regulation 3, for sub-regulation (2), the following sub-regulation shall be substituted, namely: -
“(2) Nothing contained in regulation 10, regulation 11 and regulation 12 of these regulations shall apply to the acquisition of Global Depository Receipts or American Depository Receipts unless the holders thereof, -
(a) become entitled to exercise voting rights, in any manner whatsoever, on the underlying shares; or
(b) exchange such Depository Receipts with the underlying shares carrying voting rights.”

(ie) Erstwhile there was exemption from Chapter III as such but now it is Regulation 10, 11 & 12, further one more exception from the availability of exemption under regulation 3(2) has been included which provides that the no exemption from the applicability of regulation 10, 11 and 12 of SEBI Takeover Regulations would be available on the acquisition of ADRs or GDRs where the holder is entitled to exercise voting rights on the underlying shares.

In regulation 7, in sub-regulation (1A), after the word and figure “regulation 11” and before the mark and words “, shall disclose purchase”, the words and figure “or under second proviso to sub-regulation (2) of regulation 11” shall be inserted;

(ie) Acquirer who has acquired the shares in terms of the newly inserted proviso to regulation 11(2) is also required to give the disclosure under regulation 7(1A) of SEBI Takeover Code.

In regulation 11,-
in sub-regulation (1), after the words and figure “of the voting rights,”
and before the words “in any financial year”, the words and mark “with post acquisition shareholding or voting rights not exceeding fifty five per cent.,” shall be inserted;
(ie) the acquirer is allowed to increase his shareholding by creeping acquisition to the level of 55% and not beyond it.

In regulation 11, -

(a) in sub regulation (2), (A) after the words “either by himself or through” and before the words “persons acting in concert”, the words “or with” shall be inserted;
(b) in second proviso, after the words, “such acquirer may,” and before the words “without making a public announcement”, the words “notwithstanding the acquisition made under regulation 10 or sub-regulation (1) of regulation 11,” shall be inserted;

(ie) Acquirer can enjoy 5% creeping acquisition under Regulation 10 & 11(1) [when he is between 15% & 55%] and again the new 5% when he is between 55% & 75% in the same financial year.

In regulation 14,-
(a) in sub-regulation (2), the mark “.” occurring at the end shall be
substituted with the mark “:”;
(b) after sub-regulation (2), the following proviso shall be inserted,
namely:-
“Provided that in case of American Depository Receipts or Global Depository Receipts entitling the holder thereof to exercise voting rights in excess of percentage specified in regulation 10 or regulation 11, on the shares underlying such depository receipts, public announcement shall be made within four working days of acquisition of such depository receipts.”

(ie) Entitlement to exercise the voting rights on the underlying shares of ADR/GDR in excess of percentage specified in regulation 10 or regulation 11 shall also be disclosed within 4 working days in addition to erstwhile conversion of ADR/GDR only.

SEBI clarification on Insider Trading Amendment in FAQ form

Clarifications on SEBI (Prohibition of Insider Trading) Regulations, 1992 issued on 24th July 2009.  SEBI has amended certain provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992 vide notification dated November 19, 2008 for the purpose of better disclosures and prevention of insider trading. Subsequently we received a few queries from the companies seeking clarification mainly on the interpretation of amendments. The queries received and the clarifications given by us on the same are presented below for information of all the listed companies.

To read the same, click Clarifications on SEBI (Prohibition of Insider Trading) Regulations, 1992

Priority lending to Training centres & consultancy services registered as Micro or Small enterprise – RBI instructs banks

Priority Sector Lending – Categorisation of activities under service under the Micro Small & Medium Enterprises Development (MSMED) Act, 2006

Understand the broad CATEGORIES OF PRIORITY SECTOR,
(i) Agriculture (Direct and Indirect finance)
(ii) Small Enterprises (Direct and Indirect Finance)
(iii) Retail Trade
(iv) Micro Credit
(v) Education loans
(vi) Housing loans

Understand about MSMED from http://yehseeyes.blogspot.com/search?q=MSMED

It has been decided to include loans granted by banks in respect of following activities under Micro and Small (Service) Enterprises within the priority sector, provided such enterprises satisfy the definition of Micro and Small (Service) Enterprises in respect of investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) (i.e. not exceeding Rs. 10 lakh and Rs. 2 crore respectively).

1. Consultancy Services including Management Services;
2. Composite Broker Services in Risk and Insurance Management;
3. Third Party Administration (TPA) Services for Medical Insurance Claims of Policy Holders;
4. Seed Grading Services;
5. Training-cum-Incubator Centre;
6. Educational Institutions;
7. Training Institutes;
8. Retail Trade;
9. Practice of Law, i.e. legal services;
10. Trading in medical instruments (brand new);
11. Placement and Management Consultancy Services; and
12. Advertising agency and Training centres

Accordingly, there will be no separate category for "Retail Trade" under priority sector. Loans granted by banks for Retail Trade [i.e. advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores; and advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh) would henceforth be part of the Small (Service) Enterprises.

The commercial banks may report such loans under the head "Total credit to Small Enterprises" in the half-yearly (Ad-hoc) [under 2 (a) and 2 (ii)] and yearly (final) [under 14, 15, 19, 20 and 21] return on priority sector advances.

For All Primary (Urban) Co-operative Banks (read this circular UBD.CO.BPD(PCB) Cir.No.50/09.09.001/2009-10 dated March  25, 2010)

Source: RBI/2009-10/164 RPCD.CO.Plan.BC. 24 /04.09.01/2009-10 dated 18th September 2009

FEM (Deposit) (Amendment) Regulations, 2009 permits transfer of funds from rupee account of diplomatic mission in India which are collected as Visa fees

Foreign Exchange management (Deposit) (Amendment) Regulations, 2009

In exercise of the powers conferred by clause (f) of sub section (3) of section 6 and sub section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India makes the following amendments in the Foreign Exchange Management (Deposit) Regulations, 2000 (Notification No.FEMA.5/2000-RB dated May 3, 2000) namely : -
Amendment of the Regulations: -
In the Foreign Exchange Management (Deposit) Regulations, 2000 (Notification No.FEMA.5/2000-RB dated May 3, 2000), Regulation 4, in sub-regulation (3), for clause (a), the following shall be substituted, namely:-
“(a) credits to the account shall be only by way of:-
(i) proceeds of inward remittances received from outside India through normal banking channels; and
(ii) transfer of funds, from the rupee account of the diplomatic mission in India, which are collected in India as visa fees and credited to such account.”

Source: Notification No.FEMA 193/2009-RB dated 2nd June, 2009

The Prevention of Money Laundering (Amendment) Act, 2009 [PMLA] has come into force with effect from 1st June 2009 & Master Circular – RBI/SEBI & Multi Level Marketing (MLM) firms

Download RBI Master Circular on Money Laundering / Know Your Customer (KYC).  This is in continuation of the same.

Preservation  Period of Records

The Prevention of Money Laundering (Amendment) Act, 2009 (No. 21 of 2009) has come into force with effect from June 01, 2009 as notified by the Government. In terms of Sub-Section 2(a) of Section 12 of The Prevention of Money Laundering (Amendment) Act, 2009 (PMLA, 2009), the records referred to in clause (a) of Sub-Section (1) of Section 12 shall be maintained for a period of ten years from the date of transaction between the clients and the banking company and in terms of Sub-Section 2(b) of Section 12 of the Act ibid, the records referred to in clause (c) of Sub-Section (1) of Section 12 shall be maintained for a period of ten years from the date of cessation of transaction between the clients and the banking company.

Accordingly, in modification of paragraph 2.16(iii) (a) of the above said master circular dated July 1, 2009, banks are advised to maintain for at least ten years from the date of transaction between the bank and the client, all necessary records of transactions referred to at Rule 3 of the Prevention of Money-Laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 (PMLA Rules), both domestic or international, which will permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of persons involved in criminal activity.

However, records pertaining to the identification of the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card, utility bills etc.) obtained while opening the account and during the course of business relationship, as indicated in paragraph 2.16(iii)(b) of the above said master circular dated July 1, 2009, would continue to be preserved for at least ten years after the business relationship is ended as required under Rule 10 of the Rules ibid.

Accounts of Politically Exposed Persons (PEPs)

Detailed guidelines on Customer Due Diligence (CDD) measures to be made applicable to Politically Exposed Person (PEP) and their family members or close relatives are contained in paragraph 2.5(iv) of the master circular.  It is further advised  that in the event of an existing customer or the beneficial owner of an existing account,subsequently becoming a PEP, banks should obtain senior management approval to continue the business relationship and subject the account to the CDD measures as applicable to the customers of PEP category including enhanced monitoring on an ongoing basis.

Principal Officer

Banks have been advised in Para 2.15 of the master circular referred to above that banks should appoint a senior management officer to be designated as Principal Officer and the role and responsibilities of the Principal Officer have been detailed therein. With a view to enable the Principal Officer to discharge his responsibilities,  it is advised that that the Principal Officer and other appropriate staff should have timely access to customer identification data and other CDD information, transaction records and other relevant information. Further, banks should ensure that the Principal Officer is able to act independently and report directly to the senior management  or  to the Board of Directors.

Source: RBI/2009-10/152 DBOD. AML.BC. No.43 /14.01.001/2009-10 dated 11/09/2009

Further, in view of opening and conduct of the accounts of Multi Level Marketing (MLM) firms, we (RBI) advise that banks should be careful in opening accounts of the marketing/trading agencies etc. Especially, strict compliance with KYC and AML guidelines contained in circulars UBD.CO.BPD (PCB) No. 1/12.05.001/2008-09 dated July 02, 2008 and UBD.PCB. Cir. 30/09.161.00/2004-05 dated December 15, 2004 issued by RBI should be ensured in the matter.

In cases where accounts have already been opened in the names of the marketing agencies, retail traders, investment firms, the banks may undertake quick reviews. Wherever large number of cheque books has been issued to such firms, the relative decision may be reviewed in the light of the following:

• Whether the cheque books have been issued to customers on the basis of their express request and after following the internal processes laid down in the matter.
• Whether the number of cheque books is consistent with/matching the profile of the customers as also their nature of business operations.

Even where the volume of transactions/profile of the customers apparently justify the number of cheque books issued, special ongoing monitoring of the operations in the accounts of such types of firms should be made especially if large volumes of small cash deposits are being made in those accounts and withdrawals are being made there from, through cheques written for small amounts, either across the counters or through clearing. In respect of such account holders banks may, in specific cases, call for the data from the account holders on the number and aggregate amount of post dated cheques issued. The data/information so collected should be analysed in select cases to rule out the possibility of the firms being engaged in deposit taking activities. Certain indicative parameters for selecting accounts for further scrutiny and action are the bunching of dates of the post dated cheques, the uniformity in the amounts of cheques etc. These data should be analysed together with data on cash deposits of small amounts on previous distant dates resembling the deposit contracting/mobilizations dates in terms of similar bunching and uniformity of amounts.

Please acknowledge receipt. Also, unusual operations noticed during the above review may be immediately reported to us and other appropriate authorities, such as, Financial Intelligence Unit (FIU-IND), Department of Revenue, Ministry of Finance, Government of India, Hotel Samrat (6th Floor), Chanakyapuri, New Delhi - 110 021.

Source: RBI/2009-10/158 UBD. CO. BPD. PCB.Cir. No.9/12.05.001 / 2009-10 dated 16/09/2009