Tag Archives: FATF

FATF non compliant jurisdictions

RBI has issued a circular dated 14th June, 2021 wherein they have barred investments from jurisdictions which are non FATF compliant into Payment System Operators (PSOs). Its not a complete ban but they are not authorised to give significant influence to investors from FATF non compliant jurisdictions. A threshold of 20% of the voting power or potential voting power has been established to distinguish significant influence.

PSOs who already have investments from FATF non compliant jurisdictions may continue with the said investments and also seek fresh investments from the same, in order to maintain continuity of business operations.

The circular can be found here

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12114&Mode=0

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custodian of assets/ securities at IFSC

IFSCA circular dated 24th February, 2021 allowing custodians of assets/ securities to set up branch office at GIFT-IFSC. Salient features are as under:

Entity registered and regulated in India as a custodian

  1. Any entity registered as a custodian with the Securities and Exchange Board of India (SEBI) shall be permitted to provide custodial services in GIFT-IFSC, by establishing a branch at GIFTIFSC. The branch established shall be subject to prior approval by the Authority and shall comply with the following conditions:
    a) The entity shall adequately ring fence the operational, technological and financial aspects of the branch in GIFT-IFSC from its domestic operations.
    b) The entity shall ensure financial segregation by allocating funds to the tune of USD 700,000 towards its IFSC branch. The entity shall submit a declaration to the Authority in this regard.
    Entity registered and regulated in overseas jurisdictions
  2. Any entity regulated as a custodian in a foreign jurisdiction, shall be permitted to provide custodial services by establishing a branch at GIFT-IFSC. The branch established shall be subject to prior approval by the Authority and shall comply with the following conditions:
    a) The entity is from a Financial Action Task Force (FATF) compliant jurisdiction
    b) The entity is registered as a custodian and regulated by a securities market regulator in its home jurisdiction
    c) The entity shall adequately ring fence the operational, technological and financial aspects of the branch in GIFT-IFSC from its overseas operations
    c) The entity shall ensure financial segregation by allocating funds to the tune of USD 700,000 towards its IFSC branch. The entity shall submit a declaration to the Authority in this regard
    d) The entity should have a minimum net worth of USD 7 million
  3. Any entity regulated as a capital market intermediary in a foreign jurisdiction, shall be permitted to provide custodial services by establishing a branch at GIFT-IFSC. The branch established shall be subject to prior approval by the Authority and shall comply with the following conditions:
    a) The entity is from a Financial Action Task Force (FATF) compliant jurisdiction
    b) The entity is registered as a capital market intermediary and regulated by a securities market regulator in its home jurisdiction
    c) The entity shall adequately ring fence the operational, technological and financial aspects of the branch in GIFT-IFSC from its overseas operations.
    d) The entity shall ensure financial segregation by allocating funds to the tune of USD 3 million towards its IFSC branch. The entity shall submit a declaration to the Authority in this regard
    d) The entity should have a minimum net worth of USD 35 million
    Entity not falling under any of the above categories
  4. Any entity shall be permitted to provide custodial services by establishing a subsidiary at GIFT-IFSC. The subsidiary established shall be subject to prior approval by the Authority and comply with the following conditions:
    a) The entity is from a Financial Action Task Force (FATF) compliant jurisdiction
    b) The subsidiary should have a net worth to the tune of USD 70 million. The entity shall submit a declaration to the Authority in this regard.
    Additional requirements
  5. The entity shall obtain a certificate of recognition from the Authority prior to commencement of operations of its branch or subsidiary, whichever is applicable.
  6. All the other fees applicable to a custodian in IFSC shall be applicable to such a branch or subsidiary of the entity.
  7. An entity desirous of obtaining a certificate of recognition as a custodian shall submit an application form provided at Annexure I, along with supporting documents, to the Authority. The application shall be accompanied with an application fee of USD 1000 and a recognition fee of USD 10,000. In the event the Authority refuses to grant recognition to the applicant, the
    recognition fee shall be refunded to the applicant.
  8. The certificate of recognition granted by the Authority shall be valid for a period of three years from the date of grant of recognition or its renewal.
  9. The branch office shall have adequate mechanisms for the purposes of reviewing, monitoring, and evaluating the controls, systems, procedures and safeguards.
  10. The branch office shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the Authority or the Central Government.

https://ifsca.gov.in/Viewer/Index/153

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Mauritius – FATF grey list

SEBI press release dated 25th february 2020

Inclusion of Mauritius in the FATF list of “jurisdictions under increased monitoring”

The Financial Action Task Force on February 21, 2020, has placed Mauritius in the list of “jurisdictions under increased monitoring”, commonly referred to as the “grey list” and has stated the following:

“In February 2020, Mauritius made a high-level political commitment to work with the FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime. Since the completion of its MER in 2018, Mauritius has made progress on a number of its MER recommended actions to improve technical compliance and effectiveness, including amending the legal framework to require legal persons and legal arrangements to disclose of beneficial ownership information and improving the processes of identifying and confiscating proceeds of crimes. Mauritius will work to implement its action plan, including by: (1) demonstrating that the supervisors of its global business sector and DNFBPs implement risk-based supervision; (2) ensuring the access to accurate basic and beneficial ownership information by competent authorities in a timely manner; (3) demonstrating that LEAs have capacity to conduct money laundering investigations, including parallel financial investigations and complex cases; (4) implementing a risk based approach for supervision of its NPO sector to prevent abuse for TF purposes, and 5) demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision.”

There have been apprehensions among market participants that whether inclusion of Mauritius in the ‘grey list’ would have an effect on the registration of FPIs from Mauritius.

SEBI (Foreign Portfolio Investors) Regulations, 2019 inter-alia states that an applicant is eligible to become a FPI if it is not resident in the country identified in the public statement of FATF as- i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies. This condition was also in SEBI (Foreign Portfolio Investors) Regulations, 2014.

It is noted from FATF website that when a jurisdiction is placed under increased monitoring, it construes that the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. The FATF does not call for the application of enhanced due diligence to be applied to these jurisdictions, but encourages its members to take into account this information in their risk analysis. The intermediaries should take note of the same.

Additionally, FATF identifies jurisdictions that have significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation. For all such countries, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system.  This list is often referred to as the “black list”. It is mentioned in FATF website that this was previously called “Public Statement”.

Therefore, FPIs from Mauritius continue to be eligible for FPI Registration with increased monitoring as per FATF norms.

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