securities law and regulations - nitesh bhati 100715 for students

7/23/2019 Securities Law and Regulations - Nitesh Bhati 100715 for Students

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Securities Law and Reg- Nitesh Bhati, Fac


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Structure of Financial Market

FinancialMarket

CapitalMarket

PrimaryMarket

SecondaryMarket

MoneyMarket

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ForexMarket


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Financial Intermediaries

Merchant Banker

Banker to Issues

Registrars

Transfer Agents

Depositories

Stock Exchanges

Clearing House / Clearing Corporations Stock Brokers

Portfolio Mangers

Mutual Funds

Custodians

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Financial Securities

Securities is defined under SCRA, 1956. Includes

Stock

Equity shares

Preference Shares

Debenture

Warrants

Derivatives

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Financial Market Regulators

Ministry of finance (MOF)

Ministry of Corporate Affairs (MCA)Registrar of Company (R

Securitas and Exchange Board of India (SEBI)

Reserve Bank of India (RBI)

Insurance Regulatory and Development Authority

Pension fund Regulatory and Development Authority

Forward market Commissionforward and future commodity

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Securities Market -Regulatory Frame6

MCACompanies Act, 1956 / Companies Act, 2013

SEBI

Securities Contracts (Regulations) Act 1956

SEBI Act, 1992

Depositories Act, 1996

RBI

Reserve Bank of India Act, 1934

Foreign Exchange Management Act,1999

SEs

Stock Exchange(s) - Listing approval

Listing Agreement

OthersSector specific regulatoryBanking, insurance, telecom, media, etc


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Companies Act, 20137


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The Companies Act, 2013

The Companies Act, 2013 has been notified in the Official GaAugust, 2013.

Power of Central Government to notify different date for impdifferent provision of the act - Section 1(3)

First Commencement Notification on 12th September, 2013

Till now 283 sections, out of 470 sections, are implemented

Other provisions of Companies Act, 1956 is still in force.

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Nitesh Bhati, Faculty, NISM


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Memorandum of Association

Name

Registered Office

Object

Liabilities

Share capital

Nomine Name for One Person Company

(Sec. 4 and Schedule ITable A to E)

Corporate and Allied Laws

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Articles of Association

AOA contains regulations for management of the company

(Sec. 4 and Schedule ITable F to J)


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Corporate Veil

Meaning

Salomon Vs Salomon and Co.

Lifting of Corporate Veil

Corporate veil is used for Fraud or improper conduct

Company has abused its corporate personality for unjust a

purpose

Company is formed for tax evasion


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Types of Company

Members: 7 to unlimited

Public Company

Members: 2 to 200

Private Company

Member: Only 1

One Person Company

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Issue of securities - 23

Public company

Public offer through prospectus

Private placement

Right issue or bonus issue

Private company

Private placement

Right issue or bonus issue

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Private PlacementSec 42

Private Placement through issue of a private placement offe

Initiation to subscribe shall not made to more than fifty perQIB, employee under ESOPs) in a financial year.

No public advertisements

No cash payment

Offer to selected group of person whose name are reccompany prior to the invitation to subscribed

Such person shall receive the offer by name

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Public Offer

Issue of securities to public through prospectus

Public Offer includes

Initial Public Offer

Further Public Offer


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Listing

Incorporationof company

PrivatePlacement /Right Issue

Initial PublicOffer (IPO)

Listing on StockExchange

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Companies ActSnap Short

Incorporation of company

Board of Directors

Management and Administration

Accounts of Company, Audit and Dividend distribution

Compromises, Arrangements and Amalgamations

Registration of Charge

Corporate GovernanceIndependent Directors Corporate Social Responsibilities

Liquidation

Winding up

E filing and dissemination on MCA-21

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SEBI Act, 199222


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Preamble of SEBI Act, 1992

To protect theinterests of

investors insecurities,

To promote thedevelopmentof securitiesmarket, and

To regulate thesecuritiesmarket

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Power and Function of SEBISec

11 (1) Subject to the provisions of this Act, it shduty of the Board to protect the interests of insecurities and to promote the development oregulate the securities market, by such measuthinks fit.

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Regulate the business in stock exchanges

Register and regulate the working of stockbrokers, sub-share transfer agents, bankers to an issue, trustees of truregistrars to an issue, merchant bankers, underwriters, pmanagers, investment advisers and others associated wsecurities market.

SEBIs powers also extend to registering and regulating of depositories and depository participants, custodiansforeign institutional investors, credit rating agencies, anmay be specified by SEBI.

Register and regulate the working of venture capital fucollective investment schemes including mutual funds

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Promote and regulate SROs

Prohibit fraudulent and unfair trade practices relating to the smarket.

Promote investors education and training of intermediaries inmarket.

Prohibit insider trading in securities

Regulate substantial acquisition of shares and takeover of co Require disclosure of information, to undertake inspection, to

inquiries and audits of stock exchanges, mutual funds, other associated with the securities market, intermediaries and SROsecurities market. The requirement of disclosure of informationany bank or any other authority or board or corporation

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Calling for information from or furnishing information to other within India or abroad having functions similar to SEBI in matteprevention or detection of violations in respect of securities la

Perform such functions and to exercise such powers under theContracts (Regulation) Act, 1956 as may be delegated to it bGovernment

Levy fees or other charges pursuant to implementation of this

Conduct research for the above purposes

Calling from or furnishing to such agencies specified by the Binformation as may be considered necessary for discharge o

Performing such other functions as may be prescribed

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Regulation / Guidelines /CiPolicyMaking

Registration / Recognition

Inspection / inquiries

Surveillance

Investigations,

processing of complaints

Promoting Investor Educationand training

Executivefunction

Suspend Trading

Prohibit any person to trad

Penalties and Adjudication

Attachment

Enforcementpowers


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SEBIs Powers as civil court Sec

SEBI shall have the same powers as are vested in a civil court Code of Civil Procedure in respect of certain matters, such a

the inspection of books and registers

summoning and enforcing the attendance of persons, and

examining them on oath.

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SEBIs power on Issuance of secuSection 11A

SEBI empowers to make specify regulations with respect to

matters relating to issue of capital, transfer of securities and othe

matters

the manner in which such matters are required to be disclosed b

Companies.

SEBI is vested with the power to regulate or prohibit issue of poffer document or advertisement which solicits money for issu

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Summary - Role of SEBI (Para No

Section 11(1)Basic function Section 11(2)Function includes making regulation, administratio

enforcement

Section 11(3)Powers as a civil court

Section 11(4)Power to take action, in interest of investors, eitheinvestigation or on completion of investigation

Section 11(5)Disgorgement power

Section 11 APower to regulate and prohibit issue of offer docuof shares and transfer of securities

Section 11AA- Collective Investment scheme

Section 11BDirection to intermediaries registered with SEBI

Section 11 CInvestigationSearch and Seizer

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Penalties and AdjudicationSec

Section 15A: Penalty for failure to furnish information, return e

Section 15B: Penalty for failure by any person to enter into agclients

Section 15C: Penalty for failure to redress investors grievance

Section 15D: Penalty for certain defaults in case of mutual fun

Section 15E: Penalty for failure to observe rules and regulation

management company (AMC)

Section 15F prescribes the penalty payable by a stock brokerunder the SEBI Act

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Penalties and AdjudicationSec

Section 15G: Penalty for insider trading

Section 15H: Penalty for non-disclosure of acquisition of sharetakeovers

Section 15HA: Penalty for fraudulent and unfair trade practic

Section 15HB: Penalty for Contravention where no separate pbeen provided

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Appellate Authorities

SEBI

SAT

SupremCourt

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Securities Appellate Tribunal (SA

SAT is not bound by the procedure laid down by the Code of Civ

SAT shall be guided by the principles if natural justice

SAT has powers to regulate their own procedures.

Any proceeding before the SAT shall be deemed to be a judiciawithin the meaning of provisions as given under the Indian Penal

SAT has same powers as are vested in a civil court under the codprocedure while trying a suit in respect of the following matters, n

Summoning and enforcing the attendance of any person and examoath;

Requiring the discovery and production of documents;

Receiving evidence on affidavits;

Issuing commissions for the examination of witnesses or documents;

Reviewing its decisions;

Dismissing an application for default or deciding its ex-parte;

Setting aside any order of dismissal of any application for default or by it ex-parte.

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Registration of IntermediariesS

Certificate of registration require fo stockbroker, sub-broker, sagent, banker to an issue, trustee of trust deed, registrar to amerchant banker, underwriter, portfolio manager, investmensuch other intermediary who may be associated with the sec

SEBI may however by order, suspend or cancel a certificate oas under the provisions in the regulations after giving the persa reasonable opportunity of presenting his/her case.

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Prohibition of Manipulative and DecDevices, Insider Trading, takeover

Section 12A prescribes that no person shall directly or indirectly Prohibition of Fraudulent and Unfair Trade Practices (FUTP)

a. Use or employ, in connection with the issue, purchase or sale of awhich are either listed or proposed to be listed on a recognised stocany manipulative or deceptive device or contrivance in contraventprovisions of this Act or any rules made thereunder;

b. Employ any device, scheme or artifice to defraud in connection wdealing in securities which are listed or proposed to be listed on a re

exchange;

c. Engage in any act, practice, course of business which operates oas fraud or deceit upon any person, in connection with the issue, dewhich are listed or proposed to be listed on a recognised stock exchcontravention of the provisions of this act;

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Prohibition of Manipulative and DecDevices, Insider Trading, takeover

Insider Trading Regulation

d. Engage in any insider trading activity;

e. Deal in securities while in possession of material or non-public info

communicate such material or non-public information to any other

manner which is in contravention of the provisions of this Act or rules

made hereunder

Substantial Acquisition and Takeover Regulation (SAST)

f. Acquire control of any company or securities more than the perce

equity share capital of a company whose securities are listed or pro

listed on a recognised stock exchange in contravention of the regu

under this Act.

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Securities Contract (Regulation)1956

The Securities Contracts (Regulation) Act, 1956 is a legislation to preundesirable transactions in securities by regulating the business of seand trading. In pursuance of its objects, the act covers a variety of isome are listed below:

1. Granting recognition to stock exchanges

2. Corporatization and demutualization of stock exchanges

3. The power of the Central Government / SEBI to call for periodical stock ex-changes

4. The power of SEBI to make or amend bye-laws of recognized stoc5. The power of the Central Government (exercisable by SEBI also) tgoverning body of a recognized stock exchange

6. The power to suspend business of recognized stock exchanges

7. The power to prohibit undesirable speculation

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Securities Contract (Regulation)1956.

Call for Periodical Returns from members (Brokers)

Power of SEBI and Central Govt. to make inquiry

Contract and Option in SecuritiesContract by member (Broprincipal

Penalties and procedures

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Securities Contracts (Regulation1957

Rules are made for the purpose of implementing the objects of the SCRA Formalities to be completed including submission of application for reco

exchange

Qualification norms for membership of a recognized stock exchange

Mode of entering into contracts between members of a recognized stock exc

Obligation of the governing body to take disciplinary action against a membthe SEBI

Audit of accounts of members

Maintaining and preserving books of accounts by every recognized stockevery member

Submission of the annual report and periodical returns by every recognized sto

Requirements with respect to listing of securities on a recognized stock exchan

Requirements with respect to the listing of units or any other instrument of a CoScheme on a recognized stock exchange

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Securities Contracts (Regulation1957

Eligibility criteria for membership of a recognized stock excha

Contract between members

Audit of accounts of members

Book of accounts of broker to be maintain for 5 years

Contract note/books, counterfoil of transaction to be mainta

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Public Shareholding in IPO : SCR19(2)(b)

Issue


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Compliance44


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Compliance

Certification / Verification / confirmation

Due Diligence

Audit

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Compliance

Compliance means conforming

by

registered intermediaries, and

issuer companies

To rules and regulations, notifications, guidelines and instructions

SEBI,

stock exchanges,

depositories,

the Board of Directors (BoD) of the Company, and

other competent authorities.

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Appointment of Compliance Of

Appointed under SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992,

SEBI (Intermediaries) Regulations, 2008

Independent Reporting to

Mandatory reporting: Periodic submission of reports as per prregulations

Critical Reporting: Compliance Officer must immediately anindependently report, any non-compliance observed, to SEB

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Responsibilities of Cos to Stakeho

External Stakeholders include Central Government, SEBI, Stocand other regulatory authorities like Registrar of Companies, Rof India, Income Tax, investors, issuers and other intermediarie

Internal Stakeholders include the Board of Directors, Officers employees.

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SEBI (Certification of Associated in Securities Markets) Regulation

The SEBI, delegates the following powers and functions to Naof Securities Markets:

(a) The functions of NISM in respect of certification for associated pe

securities market shall include putting in place and implementing th

process, procedure and policies.

(b) NISM in consultation with SEBI may lay down standards which ma

all or any portion of such standards shall be applicable to all or any

associated persons working or associated with all or any class of inte

securities market; (ii) specify that no associated person in any such cqualified to be employed or engaged or continued to be employed

an intermediary unless he is in compliance with such standards of ex

continuing professional education requirements and such other qua

NISM in consultation with the SEBI may specify.

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Manner of Obtaining NISM Certi

Principal Passing the relevant certificate examination, as may be specified

Successfully completing a related 2 day CPE Program5

Delivering at least four sessions in specific 2 day CPE program, asspecified by NISM.

Other than Principal (other than Principal who has attainted 50 year10 year experience)

Passing the relevant certificate examination, as may be specified

Successfully completing a related 2 day CPE Program

Other

Passing the relevant certificate examination, as may be specified

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Validity and CPE

Certification valid for 3 years

Continuing Processional Education (CPE) for re validating for

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SEBI (Prohibition of Insider TraRegulations, 1992 / 2015

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K D fi iti


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Key Definition

Insider : Any person who is or was a Connected Person or a be Connected Person and who is reasonably expected to hunpublished price sensitive information in respect of securitiecompany or who has received or has had access to such unprice sensitive information.

Connected Person : Director, KMP, Same management or grIntermediaries involves such as Merchant Banker, Broker, banetc.

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K D fi iti


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Key Definition

Price sensitive information is any information which relates directto a company and which if published, is likely to materially affecsecurities of that company. The following are deemed to be pricinformation:

Periodic financial results of the company.

Intended declaration of dividends (both interim and final).

Issue of securities or buy back of securities.

Any major expansion plans or execution of new projects.Amalgamation, mergers or takeovers.

Disposal of the whole or substantial part of the undertaking.

Any significant changes in policies, plans or operations of the

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P hibiti D li C


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Prohibition on Dealing, Communor Counseling

Prohibition of Insider trading Regulations, prohibits a connected or deemed to be connected person from dea

of company listed on any stock exchange, on his own behalfof any other person when in possession of unpublished price information, and

from communicating, counseling or procuring, directly or indunpublished price sensitive information to any person who whpossession of such unpublished price sensitive information sha

securities.

However, the above restrictions do not apply to any communicain the ordinary course of business or under any law.

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Di l d I t l P d


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Disclosures and Internal ProceduPrevention of Insider trading

All listed companies and organisations associated with securincluding the intermediaries as mentioned in section 12 of theAMC and trustee of the MFs, SROs, stock ex-changes, public institutions and the professional firms such as auditors, accoulaw firms etc, shall frame a code of internal procedures and

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Code of Conduct for Prevention of In57


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Code of Conduct for Prevention of InTrading

As per the SEBI Act, an organisation / firm needs to appoint aofficer who is responsible for

setting forth policies and procedures

monitoring adherence to the rules for the preservation of Price S

Information,

pre-clearing of all designated employees and their dependents

monitoring of trades and the implementation of the code of con

overall supervision of the partners / proprietors.

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Prevention of Insider trading58


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Prevention of Insider trading

Preservation of Price Sensitive Information and Need to Kno Chinese Wall

Pre-clearance of Trades

Reporting Requirement for Transactions in Securities

Restricted /Grey List

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Prevention of Insider trading

Other Restrictions

Directors/designated employees/partners shall execute order wafter ap-proval of pre-clearance is given.

Directors/designated employees/partners shall hold their investmminimum period of 30 days in order to be considered as being hinvestment purposes.

Where the securities are sold off before the holding period due topersonal emergency, the Compliance officer shall waive off thamake a record in writing with the valid reason.

Analysts, if any, employed with the organisation/firm while prepareports of a client company shall disclose their shareholdings /intcompany(s) to the Compliance Officer. Analysts who prepare reof a listed company shall not trade in securities of that companyfrom preparation of such report.

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SEBI (Prohibition of Fraudulent and UTrade Practices) Regulations, 2003

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Fraud Reg 2(1)(c)62


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FraudReg. 2(1)(c)

Regulation 2(1) (c) defines fraud as inclusive of any act, expromission or concealment committed to induce another persoto deal in securities. There may or may not be wrongful gain oof any loss. However, that is inconsequential in determining ifbeen committed. Some of the instances cited are as follows:

a) A wilful misrepresentation of the truth or concealment of materiathat an-other person may act, to his detriment

b) A suggestion as to a fact which is not true, by one who does not btrue

c) An active concealment of a fact by a person having knowledge fact

d) A promise made without any intention of performing it

e) A representation, whether true or false, made in a reckless and ca

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Prohibition of Certain Dealing in Sec63


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Prohibition of Certain Dealing in Sec

Chapter II of the regulations prohibits certain dealings in securities cselling or issuance of securities. The regulations prohibit a person to, indirectly:

buy, sell or deal in securities in a fraudulent manner;

use or employ in connection with issue, purchase or sale of any securitproposed to be listed, any manipulative or deceptive device or contrivacontravention of the provisions of SEBI Act or rules or regulations made th

employ any device, scheme or artifice to defraud in connection with dof any security listed or proposed to be listed;

engage in any act, practice, course of business which would operate deceit in connection with any dealing in or issue of securities, which are to be listed.

indulge in a fraudulent or an unfair trade practices in securities.

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Prohibition of Manipulative Fraudule64


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Prohibition of Manipulative, FrauduleUnfair Trade Practices

Dealing in securities shall be deemed to be a fraudulent or an unfair trade practic

and may include all or any of the following: a) indulging in an act which creates false or misleading appearance of trading

market;

b) dealing in a security not intended to effect transfer of beneficial ownership boperate only as a device to inflate, depress or cause fluctuations in the price owrongful gain or avoidance of loss;

c) advancing or agreeing to advance any money to any person thereby inducperson to offer to buy any security in any issue only with the intention of securisubscription to such issue;

d) paying, offering or agreeing to pay or offer, directly or indirectly, to any persmoneys worth for inducing such person for dealing in any security with the objdepressing, maintaining or causing fluctuation in the price of such se-curity;

e) any act or omission amounting to manipulation of the price of a security;

f) publishing or causing to publish or reporting or causing to report by a personsecurities any information which is not true or which he does not believe to be tthe course of dealing in securities;

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Prohibition of Manipulative Frau65


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Prohibition of Manipulative, Frauand Unfair Trade Practices

g) entering into a transaction in securities without intention of performing it or without intenti

ownership of such security;

h) selling, dealing or pledging of stolen or counterfeit security whether in physical or de-mat

i) an intermediary promising a certain price in respect of buying or selling of a security to a cdiscrepancy arises in the price of such security and retaining the difference in prices as prof

j) an intermediary providing his clients with such information relating to a security as can-noclients before their dealing in such security;

k) an advertisement that is misleading or that contains information in a distorted manner aninfluence the decision of the investors;

l) an intermediary reporting trading transactions to his clients entered into on their behalf in order to increase his commission and brokerage;

m) an intermediary not disclosing to his client transactions entered into on his behalf in-cludposition;

n) circular transactions in respect of a security entered into between intermediaries in or-decommission to provide a false appearance of trading in such security or to inflate, depress in the price of such security;

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Prohibition of Manipulative Frau66


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Prohibition of Manipulative, Frauand Unfair Trade Practices

o) encouraging the clients by an intermediary to deal in securities solely w

enhancing his brokerage or commission;

p) an intermediary predating or otherwise falsifying records such as contr

q) an intermediary buying or selling securities in advance of a substantialwhereby a futures or option position is taken about an impending transacor related futures or options contract;

r) planting false or misleading news which may induce sale or purchase o

s) misselling of units of a mutual fund scheme. Mis-selling means sale of unfund scheme by any person, directly or indirectly by making false or misle

or concealing or omitting material facts of a scheme or concealing the afactors of the scheme or not taking reasonable care to ensure suitability the buyer.

t) illegal mobilization of funds by sponsoring or causing to be sponsored ocausing to be carried on any collective investment scheme by any perso

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Investigation - Regulation 8(1)67


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Investigation Regulation 8(1),

It shall be the duty of every person who is under investigation:

a) To produce books, accounts and documents that may bethe Investigating Authority and also to furnish statements andthat is sought.

b) To appear before the Investigating Authority personally whdo so and to answer questions posed by the authority

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SEBIs power to take actions In68


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SEBI s power to take actions InFinal

SEBI may without prejudice to the provisions contained in sub-se(2A) and (3) of section 11 and section 11B of the SEBI Act, by an interests of the investors and the securities market issue or take afollowing actions or directions either pending investigation or encompletion of the investigation or enquiry namely

(a) Restrain persons from accessing the securities market,

(b) Impound and retain the proceeds or securities in respect

transaction which is in violation or prima facie in violation of tregulations,

(c) Direct an intermediary or any person associated with the market in any manner not to dispose of or alienate an asset fa fraudulent and unfair trans-action.

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SEBI action against an intermedi69


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SEBI action against an intermedi

Suspend the registration of the intermediary;

Cancel the registration of the intermediary.


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SEBI (Intermediaries) Regulati2008

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General Obligations of Intermed71


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General Obligations of Intermed

The SEBI (Intermediaries) Regulations, 2008 prescribes that anshall provide SEBI with a certificate of its compliance officer oApril every year, certifying the compli-ance by the intermediaobligations, responsibilities and the fulfilment of the eligi-bilitycontinuous basis under these regulations and the relevant regintermediary also needs to display the copy of the certificateoffices including the branch offices.

Appointment of Compliance Officer

Inspection and Disciplinary Proceed72


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p p y

Obligation of the intermediary on Inspection

It shall be the duty of every director, proprietor, partner, trustee, officer, eagent of an intermediary which is being inspected, to produce to the inspsuch books, accounts, records including telephone records and electrondocuments in his custody or control and furnish to the inspecting authoritstatements and information relating to its activities within such time as theauthority may require.

2. The intermediary shall allow the inspecting authority to have reasonablpremises occupied by such intermediary or by any other person on its beextend reasonable facility for examining any books, records including te

and electronic records and documents in the possession of the intermedother person and also provide copies of documents or other material whof the inspecting authority are relevant for the purposes of the inspection

Appointment of Auditor : SEBI may also appoint a qualified auditor to inspaccount of the affairs of an in-termediary. The SEBI may also appoint a qdirect a qualified valuer to be ap-pointed by the intermediary, if so consi


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Action in case of Default74


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(i) Suspension of certificate of registration for a specified perio

(ii) Cancellation of certificate of registration;

(iii) Prohibiting the noticee to take up any new assignment orlaunch a new scheme for the period specified in the order;

(iv) Debarring a principal officer of the noticee from being emassociated with any registered intermediary or other registerethe period specified in the order;

Directions75


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SEBI may, in the interest of the securities market, in the interest of the investors

purpose of securing the proper management of any intermediary, issue, necincluding but not limited to the following -

a) directing the intermediary or other persons associated with securities many money or securities collected from the investors under any scheme oor without interest;

b) directing the intermediary or other persons associated with securities mcess the capital market or not to deal in securities for a particular period ciate with any intermediary or with any capital market related activity;

c) directing the recognized stock exchange concerned not to permit tradties or units issued by a mutual fund or collective investment scheme;

d) directing the recognized stock exchange concerned to suspend tradior units issued by a mutual fund or collective investment scheme;

e) any other direction which SEBI may deem fit and proper in the circumscase.

Code of Conduct76


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High Standards of Service

Conflict of Interest

Compliance and Corporate Governance


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Prevention of Money LaundeAct, 2002

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Prevention of Money Laundering78


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2002

Effective

July 1, 2005

Objective

prevent money laundering

to provide for confiscation of property derived froinvolved in, money- laundering, and

for matter connected therewith or incidental thereAuthority

Directorate of Enforcement in the DepartmenRevenue, Ministry of Finance


Offence of Money laundering -79


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Whosoever

directly or indirectly attempts to indulge,

knowingly assists,

knowingly is a party, or

is actually involved

in any process or activity connected with the proceeds of crime includin

its concealment,

possession,

acquisition, or

use

and projecting or claiming it as untainted property

shall be guilty of offence of money - laundering


Punishment for moneylaunder80


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Sec. 4

Rigorous imprisonment for a term which shall not be less th

but which may extent to seven years (ten years in case of ofunder para 2 of Part A of the Schedule), and

shall also liable to fine


Enforcement Powers under PMLA81


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Attachment of property

Survey

Search and Seizure/freeze records & property

Search of Person

Arrest a Person

summon and record the statements of persons


Action under Act82


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Order of Confiscation

Passed by Adjudicating Authority

Effect: all the right and title of property shall best absolutely in Ce

Government free from all encumbrances

Order under Sec. 4

Passed by Special Court (Session Courts which are designated a

Act)

Effect: imprisonment and fine


Burden of proofSec. 2483


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In any proceeding relating to proceeds of crime under this A

In case of a person charged with the offence of money-launderi

section 3, the Authority or Court shall, unless the contrary is prove

such proceeds of crime are involved in money laundering, and

In the case of any other person, the Authority or Court may presu

proceeds of crime are involved in money-laudering


Provision for protection - 6284


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Any authority or officer exercising power under this Act or any

thereunder, for search or arrest of any person,

without reason record in writing

Shall for every such offence be liable for conviction for impristwo years or fine upto fifty thousand rupees or both.


Obligation of Bank/FI/Intermedia85


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Reporting Entities (Sec 2(wa)): means

Banking company,

Financial institution,

Intermediaries, or

A person carrying on a designated business or profession

Every reporting entity shall (Sec 12):

Maintain a record of all transactions,

Furnish to director information relating to such transaction, whether attemthe nature and value of which may be prescribed

Verify the identity of its clients

Identify the beneficial owner, if any, of such of its client

Maintain record of documents evidencing identity of its client and benefias account files and business correspondence relatingto its clients


Obligation of Bank/FI/Intermedia86


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Maintain a record of all transactions which include:

All cash transactions of the value of more than Rs. 10 lakh or in foreign currency.

All series of cash transactions integrally connected to each ohave been valued below Rs. 10 lakh or its equivalent in foreigwhere such series of transactions take place within one calenand the aggregate value of such transaction exceeds Rs. 10

All suspicious transaction whether or not made in cash. For th

suspicious transactions apart from transactions integrally contransactions remotely connected or related shall also be co

The records have to be maintained for a period of 10 years fromcessation of the transactions


Power to impose fine87


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Director, under the Act, may

Make inquiry with regard to the obligation of reporting authority

May direct to get its records audited by an accountant from a p

by Govt.

Director finds that a reporting entity or its designated directoror any of its employee has failed to comply with obligations, h

Issue a warning

Direct to comply with specific instruction

Direct to send reports at such interval as may be prescribed

By order impose a monetary penalty on reporting entity, its desig

or any of its employee not be less than 10,000 but may extend to


Protection to Reporting Authority88


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No civil or criminal proceeding against reporting entity, its dir

employee for furnishing information


Highlights of SEBI Circular on Anti-MoLaundering

89


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Laundering

Obligation to establish policies and procedures - Senior Manage

Policies and Procedures Coverage

Written Anti-Money Laundering Procedures

(a) Policy for acceptance of clients

(b) Procedure for identifying the clients

(c) Transaction monitoring and reporting especially Suspicious Transa(STR)

Client Due Diligence

Client Identification Procedure (CIP) - Know your Client (KYC) po

Record Keeping

Monitoring of Transactions

Client Due Diligence90


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Obtaining sufficient information in order to identify persons who beneficially owsecurities account.

Verify the customers identity using reliable, independent source documents, dformation;

Identify beneficial ownership and control, i.e. determine which individual(s) ultcontrol(s) the customer and/or the person on whose behalf a transaction is be

Verify the identity of the beneficial owner of the customer and/or the person otransaction is being conducted, corroborating the information provided in rela

Conduct ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of and account throughout the course of the business relationship

knowledge of the customer, its business and risk profile, taking into account, wthe customers source of funds;

Understand the ownership and control structure of the client; and

Periodically update all documents, data or information

Suspicious Transaction MonitorinReporting

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Reporting

Suspicious Transaction Monitoring & Reporting

Clients whose identity verification seems difficult or clients that appear not

Asset management services for clients where the source of the funds is notkeeping with clients apparent standing /business activity;

Clients based in high risk jurisdictions;

Substantial increases in business without apparent cause;

Clients transferring large sums of money to or from overseas locations with payment in cash;

Attempted transfer of investment proceeds to apparently unrelated third p

Reporting to Financial Intelligence Unit-India

Cash Transactions Reports should be submitted to FIU-IND by 15th of the su

The Suspicious Transaction Report (STR) shall be submitted within 7 days ofconclusion that any transaction, is of suspicious nature.

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Thank You


securities law and regulations - nitesh bhati 100715 for students

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