Sebi lets off IFCI Financial Services without penalty

Regulator Sebi has let off IFCI Financial Services, a subsidiary of state-run IFCI Ltd, without any monetary penalty after the company took "rectifying steps" to improve its compliance to capital market norms as well as Prevention of Money Laundering rules.
Noting that "no serious observations are made" where investors' interests would be adversely affected, the Securities and Exchange Board of India (Sebi) said it is not "a fit case for imposing monetary penalty".
In its order, Sebi, however, said that if "any suspicious transaction" comes to light that has not been reported by the company, the regulator can refer the matter to the FIU (Financial Intelligence Unit), the agency responsible for Prevention of Money Laundering Act (PMLA), for appropriate action.

Accordingly, the regulator has disposed of the case.
In June 2012, Sebi conducted an inspection of books of accounts, documents and other records of IFCI Financial Services and observed "certain procedural non-compliances".
IFCI Financial Services, which is a Sebi registered intermediary, was issued a show cause notice (SCN) in 2014, alleging non-approval of anti-money laundering policy, no written policies and procedures on anti-money laundering, no proper training of staff, no client due diligence and policy for acceptance of clients, no risk based approach, no monitoring of transactions and no suspicious transactions and monitoring reporting.

As per the Sebi provisions, every registered intermediary shall adopt written policies and procedures to implement the anti money laundering provisions as envisaged under Prevention of Money Laundering Act (PMLA).

It was alleged that IFCI had not translated the PMLA policy into written down procedure to be followed by staff at relevant levels in their day to day functioning to implement the PMLA provisions and thereby violated broker regulations.
Another allegation was that IFCI did not submit any documentary evidence to substantiate the claim that its written down policy on anti-money laundering measures had been approved by its board nor produced any evidence to show the effective date since when the policy has been adopted by it.
With regard to identification and verification procedures, it was alleged that apart from PAN card verification, the firm verifies only the "debarred list", which was provided by NSE periodically, to ascertain whether the client's name appears in it before registration.

In respect of clients under "Politically Exposed Persons (PEP)", IFCI Financial services had informed the inspection team that no data base on PEPs available in public domain was being verified and it was only the personal knowledge of the staff, registering the clients, were used for screening such clients.
"The Noticee (IFCI Financial Services) has now put in place formally documented processes, with specific reference to PMLA which have been communicated to the staff, sub brokers, authorized persons and branches through training," Sebi Adjudicating Officer Nagendraa Parakh said in an order.
Parakh also said that in line with the observation of the inspection team, IFCI had started a dedicated training programme on provisions of PMLA and submitted a copy of the presentation on PMLA activities during their training programmes and a list of people attending such training programme on October 1, 2012.

Observing that the debarred list of NSE is a "comprehensive document" which can be "relied upon" for reference for client identification, he said the company should take more efforts to ascertain whether the client has any criminal background or was banned in any other manner by any authority or appeared in list of PEP category.
"I find that the transactions done by the clients of the Noticee are monitored... Clients are categorised in different risk levels and also complete address in case of NRIs along with valid address proof is also maintained," Parakh added.