22 07 2011 ANMI Members Meet on Compliance and Inspection

8/3/2019 22 07 2011 ANMI Members Meet on Compliance and Inspection

1/24

26Ju

ly2011

O

erview

ofC

m

pliance


2/24

Com liance re uirements

o Compliancemeansensuringconformityandadherencetoregulatoryacts,rules,, , , .

o Compliancerequirementbroadlyflowfromtherelevant provisionsofSCRA1956;

SCRR

1957,

SEBI

Act,

Rules,

Regulation

and

Circulars

,Rules,

Regulations,

Byelaws &CircularsofNSEIL&NSCCL


3/24

Compliance V/s Business Dilemma


4/24

Benefits of Compliance

BusinessContinuity

Com liance&RiskMana ement lessrisk lessbaddebts

Compliance&

Growth

(introduction

of

new

products)

Compliance&Credibility(clientconfidence)

Reputation&Goodwill(inthemarketplace&withregulators)

Healthy

Financials

better

liquidity RobustInternalcontrols

Compliance&Peaceofmind


5/24

Compliance and Regulatory

equ remen s

RequirementstobeadequateneitherExcessivenorInadequate

Exchange

monitors

level

of

compliance

by

analyzing

data/

Information/

submissionsavailablewiththeExchange

theInspection

Inspectionaregulatory

requirements

&

atool

to

monitor

level

of

compliance

Inspectionstoberiskbased,swift&valueadding


6/24

Commonl ound Observations

Observationsarebroadlycategorizedintothefollowingareas

ClientRegistration

Provisions ofTrading

Dealings withClients

MarginReporting


7/24

Client Registration

o Non Execution of documents KYC /MCA / RDD, Incomplete Documents/noseparate dockets

o Contradictory clauses in voluntary or mandatory documents/ Jurisdiction

o Non Collection of documents/details like address/identity/PAN/ Bank/ DP

o Non delivery of set of documents executed to clients

o Non compliance of requirements as per December 03, 2009 circular of SEBI

o Index page not maintained

o Clients countersi n a ainst the se ment exchan e in KYC not obtained

o Identity & address of the introducer not captured in KYC

o Details of action taken against a client not obtained

o Financial information & supporting documentary evidence not obtained

o Updation of financial information and periodic reviews not done


8/24

Provisions o PMLA

ccoun open ng proce ure- n oney aun er ng

Requirements

C ient Due Client Policy for Classification ofDiligence Identification

procedureclients & risk

based approach

ients o speciacategory (CSC)


9/24

Provisions of PMLA (Cont)

o Verifytheclientidentityusingreliable,independentsources,documents,data

orinformation.

o Verifytheidentityofbeneficialowneroftheclient and/orthepersonon

whosebehalftransactionsaretobeconductedandobtainsufficientdetails

o

Ensure

that

no

account

is

opened

in

a

fictitious

/

benami

name

or

where

the

intermediaryisunabletoapplyappropriateCDDmeasures/KYCpolicies

,

perception

o Clientsof

special

category

like

NRI,HNI,Trust,NGO,PEP,

Non

face

to

face

etc.to

beclassified ashighriskclientsandcloselymonitored

o Clienttransactionsnottobedisproportionatetotheirfinancialstrength

o

o Theidentity

records

of

clients

to

be

preserved

for

aperiod

of

10

years

from

thedateofcessationofthetransactionsbetweentheclientandintermediary


10/24

Dealin s with Clients Cont...

RUNNINGACCOUNT AUTHORIZATION

o Runningaccountauthorizationisvoluntaryatclientsdiscretion

o Authorizationshallbedatedandcontainaclause,statingthatclientcan

revokeauthorization

at

any

time.

o Authorization shall be si ned b the client onl & not b an POA holder.

o Ifamemberhasobtainedsuchauthorizationfromtheclient,themember

authorizationshallcontinuetillthesameisrevokedbytheclient


11/24

Dealin s with Clients

SETTLEMENT OF FUNDS &SECURITIES

o Incaseofrunningaccountcompulsorysettlementtobedoneon

monthly/quarterlybasisasperclientpreference,acrossthesegments

o

Retention

of

funds

and

securities

at

the

time

of

settlement

may

be

as

under Derivativemarket tradingmembermayretainupto175%ofmarginrequirement

Capitalmarket tradingmembermayretainentireoutstandingpayinobligation

offunds&securitiesandvalueoftransactionsexecutedonthedayofsettlement.

o Nointer

client

ad ustment

for

the

ur ose

of

settlement

o Issuestatementoffunds&securitiesalongwithretentiondetails

o Passcorporatebenefitslikerights,bonus,dividendetctorespectiveclients


12/24

Dealings with Clients (Cont...)

COMPLIANCES RELATED TO POA

svo un aryan a c e n sso e scre on

ShallnotgiveanyexclusiverightorcontrolovertheDPaccountorledgeraccountorbankaccountofclient

POAshouldbeusedforthepurposespermittedbySEBI

POAshouldnotpermit

Transferofsecuritiesforoffmarkettrades

OpeningatradingorDPaccountinthenameofclient

xecu e ra es n enameo ec en w ou sconsen

ProhibitissueofDeliveryInstructionSlipstoclient.

Prohibitclient(s)fromoperatingtheaccount

Allow

merging

of

balances

(dues)

under

various

accounts


13/24

Margin Reporting


14/24

Mar in Re ortin Cont...

COLLECTION OF MARGINS

o Marginsareanimportantelementof theriskmanagementsystem

o em erss ou aveapru en sys emo r s managemen opro ec themselvesfromclientdefault.

o Thesame

shall

be

well

documented

and

be

made

accessible

to

the

clients

andtheStockExchanges.

o Inthecashsegmentthequantumofthesemarginsandtheformandmodeofcollectionarelefttothediscretionofthemembers


15/24

Margin Reporting (Cont...)

COLLECTION OF MARGINS DERIVATIVES

SEGMENTo In the Derivatives segment members are required to collect and report

details of upfront margins collected from all their Clients

o ra ng mem er can repor c en marg n e a s o c ear ng corpora on

upto T+2 day

o Non reporting is considered as 100 % shortfall

o Margins should be available with the member and should be in approvedforms only (Liquid securities / free funds)

o Penalt would be im osed in case of shortfall or wron re ortin

o In case of non receipt of payin of funds/ securities beyond a reasonabletime gap, not desirable to allow further positions

o xposure a owe o c en s s ou e n propor on o marg ns an

financial strength


16/24

Trading Terminals

authorised persons offices

o No extension of NEAT terminal without prior approval of the Exchange.

o To be operated by approved persons only.

o Upload trading terminal details to the Exchange before activation.

o All information to be correctl u loaded in the rescribed format articularluser name, location and terminal id.

o Any change in the details to be immediately updated in Exchange records.

o ra ng o e one on y rom ra ng erm na s ena e or ra ng

o Trading terminals in the CM/ F&O/Currency segment to be operated by usershaving valid certifications only.


17/24

Other Observations / Bad practices

Misutilizationofclientfunds/securitiesfortheuseofself/otherclients

inthe

back

office

to

different

clients

accounts

Modificationofclienttradesandtransferprofitabletradestorelatedentities

un ng oc en s yse roug

Consideringchequesnotdeposited/heldinhandforsubstantialperiodswhile

reporting

margins

to

the

exchange nexp a ne useo un sra se yp e geo c en secur es

Unauthorizedtradesinclientsaccounts

Surveillance/Risk/Backofficefunctionsnotsegregatedleadingtofraud

AcceptanceofCash/DD/payorderandcredittootherclientaccounts

Offeringfixreturns/creationofemailIDsofclients


18/24

New Regulatory Requirements

PREFUNDEDINSTRUMENTS

o In case of payment received through prefunded instruments, like, Pay Order,Demand Draft, Bankers cheque etc. members need to ensure that the fundsare not received from third parties.

o If the value of prefunded instruments is Rs. 50,000/ or more, per day perclient, the stock brokers may accept the instruments only if the same areaccompanied by proofs like

oftheissuingbank.

Certifiedcopyoftherequisitionslip(portionwhichisretainedbythebank)toissue

theinstrument.

Certifiedcopyofthepassbook/bankstatementfortheaccountdebitedtoissuetheinstrument.

Authenticationofthebankaccountnumberdebitedandnameoftheaccountholderb theissuin bankonthereverseo theinstrument.

o

Members should also maintain an audit trail of the funds received throughelectronic fund transfers to ensure that the funds are received from theirclients only.


19/24


...RESPONSIBILITY OFCOMPLIANCE OFFICERS

o Keep check on Type of Investor complaints received

o To re ort Arrest conviction of ke officials

o Report activities carried out, if any, in any business other than that of

securities.

o To report if Membership to the stock Broker or Group Company is refused by

any Regulator

o Technology failure at Stock broker entity impacting servicing of more than

25% of its customers.o Financial disputes before various Government organization / bodies created

under Act of Parliament involving a value of more than 25%, on cumulative

basis of the Networth of the Stock Brokin entit

o Any other important event


20/24


...ONLINE CLIENT CODE MODIFICATION

o Client Code Modification for Non institutional clientsto be fined at SEBI prescribed rates

o Fine levied to be 1% or 2% of the value of tradesmodified during a month as may be applicable

o Avoid back office transfer of trades

NISMCERTIFICATION FOR PERSON DEALIN WITH CLIENT

o All persons associated with stock brokers need to get Certified if they areinvolved with or deal with any of the following

Assets / funds of clients or Redressal of Invertor grievance or activities

having bearing on operational risk

o All employees of trading member should be certified as under

New employees within 1 year from date of circular Existing employees should obtain certification within 2 years


21/24

NEWREGULATORYREQUIREMENTS

...MARKET RUMORS

o Stock broker should have proper systems to ensure that

Employees temporarystaff voluntaryworkersetc.donotencourageor

circulaterumors

or

unverified

information

AccesstoBlogs/Chatforums/Messengersitesetc.shouldeitherbe

restrictedundersupervisionoraccessshouldnotbeallowed

LogsforanyusageofsuchBlogs/Chatforums/Messengersites(calledbyany

nomenclature)should

be

maintained

by

members

Employeesshouldbedirectedthatanymarketrelatednewsreceivedby

themeitherintheirofficialmail/personalmail/blogorinanyother

manner should be orwarded onl a ter the same has been seen and

approvedbytheComplianceOfficer


22/24

IssueofFAQonDealingsbyNRIs

Reviewofdetailsincludedincompliancecalendar handbook

consolidatedcircular

with

reference

to

recent

circulars

Memberseducationoncompliancerequirements

Conductingcompliancevisitsforcreatingawarenessamongnewmembers

Initiatedreviewofclientregistrationdocumentstomakethesamecost

effectiveand

user

friendly

ClarificationsregardingPowerofAttorneysobtainedfromclientsoftradingmembers

Clarificationsregardingprefundedinstruments

Clarificationregardingundertakingforrunningaccountmaintenance


23/24


24/24

QUESTIONS ???