Key Highlights Of Prevention Of Money Laundering (Maintenance Of Record) Third Amendment Rules, 2023 And The Impact On Vdasps
The Ministry of Finance on October 17, 2023 notified the Prevention of Money Laundering (Maintenance of Record) Third Amendment Rules, 2023 (“Amendment”) to amend the Money Laundering (Maintenance of Record) 2005 (“PMLA Rules”). Following are some of the key changes brought in by the Amendment:
- While the PMLA Rules already provided for the groups to implement a group wide policy for the purpose of discharging obligations under Prevention of Money- laundering Act, 2002, the Amendment now also requires that the reporting entity which is a part of a group, to implement a group wide policy on sharing of information for client due diligence and management on money laundering and terror financing risk.
- Pursuant to the Amendment, every reporting entity including Virtual Digital Assets Service Providers (“VDASPs”) shall, at the time of commencement of an account based relationship or while carrying out transaction of an amount equal to or exceeding Rs. 50,000/- (Rupees Fifty Thousand only), whether conducted as a single transaction or several transactions that appear to be connected, or any international money transfer operations, be required to identify its clients and the beneficial owners using “reliable and independent sources of identification”. The Amendment further obligates the reporting entity to take reasonable steps to understand the nature of the customer’s business, its ownership and control upon happening of above-mentioned events. Before the Amendment, such identification of clients and beneficial owners was only required at the commencement of an account based relationship.
- Where the reporting entity relies on a third party for the purpose of identification of the client under Rule 9(1)(a), such reporting entity shall be required to “immediately” obtain, from the third party or the Central KYC Records Registry, the records and information for client due diligence. Before the Amendment, the reporting entity was required to obtain such records and information within 2 (two) days.
Following are the key impact of the Amendment on VDASPs:
- While, VDASPs would already have been tracking international transactions or transactions of an amount equal to or exceeding Rs. 50,000/- (Rupees Fifty Thousand only) to implement the verification requirement under the PMLA Rules, however, the scope of such verification has been significantly expanded by the Amendment. Thus, VDASPs would need to implement or revise its internal policy, controls and mechanism to comply with the tightened verification requirements, including collecting data regarding client’s business, ownership and control. This is also likely to impact the users/clients of such VDASPs as they would be required to provide information regarding beneficial ownership, business, ownership and control, as may be applicable, each time they undertake international transactions or transactions of an amount equal to or exceeding Rs. 50,000/- (Rupees Fifty Thousand only).
- VDASPs would have to implement a group wide-policy against terror financing and money laundering if not already implemented, along with formulating procedures and safeguard for sharing information with its group entities for the purpose of client due diligence.
- As the collection of client due diligence information and records from the third party would require to be undertaken on an immediate basis, thus, VDASPs would need to revise its internal mechanisms, procedures, and technology to comply with such requirement.