FIU Current Affairs

FIU categorises 9,491 NBFCs as high risk for PMLA non-compliance

The Financial Intelligence Unit (FIU) under Finance Ministry has categorised around 9,491 non-banking financial companies (NBFC) as high risk prone financial institutions as they have not complied with stipulated provision of Prevention of Money Laundering Act (PMLA). There are about 12,000 NBFCs in country at present and high risk financial NBFCs account for about 80% of total NBFCs in the country. This list containing names of NBFCs has been updated till January 2018.

What does it means?

The publication of names of NBFCs in list is primarily to make aware public that they are not law compliant and that they should refrain from indulging into transactions with them. These NBFCs have been urged to comply with this “basic obligation” under PMLA and its rules for the past one and a half years, but to no avail. Once these NBFCs comply with the rules, their names will be taken off the list.

Background

Under PMLA, the NBFCs, which include cooperative banks, are required to furnish details about their financial operations and transactions to the FIU in a prescribed format. The FIU had observed activities of these institutions and processed the data of these companies after demonetisation of high value currency notes of Rs 1,000 and Rs 500 in November 2016. It also had found that these NBFCs also did not comply with stipulated condition of appointing principal officer and designated director who are responsible for checking and reporting suspicious transactions and cash transactions of Rs 10 lakh and above. FIU is mandated to check crimes in Indian economy and alert enforcement agencies against such.

Non-banking financial companies (NBFCs)

NBFC is company registered under Companies Act. It is engaged in business of loans and advances, acquisition of shares, bonds, stocks, debentures and securities issued by government or local authority or other marketable securities. NBFCs can make investments and lend and hence, their activities are akin to that of banks. However, they cannot accept demand deposits and do not form part of payment and settlement system i.e. they cannot issue cheques drawn on itself.

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BSE sets up new system for reporting suspicious trades

Bombay Stock Exchange has instituted new system Suspicious Transaction Reports (STRs) for reporting suspicious trades in order to check money laundering through stock markets.

The national stock exchange has asked its members to report details of the STRs submitted to the government’s Financial Intelligence Unit (FIU) on a monthly basis.

As per new rules

  • Trading members are required to submit the data through a specific FIU-STR module on the BSE Electronic Filing System (EFS), an online gateway along with Cash Transaction reports (CTRs).
  • In this data members should provide details of their registration with the FIU along with the information regarding the principal officers and the designated directors for the Prevention of Money Laundering Act (PMLA) compliance.

The new system was initiated in line with regulators and Government’s financial intelligence agencies move to enhance their vigil recently on entities trying to misuse the stock market platform for black money laundering and to evade taxes.

About Financial Intelligence Unit

  • FIU-India is the central national agency responsible for receiving, analysing and processing financial transactions and disseminating information related to suspect transactions to other enforcement and intelligence agencies
  • It was established by the government in 2004 to strengthen and coordinate the collection and sharing of financial intelligence through regional, national and global networks in order to combat money laundering and related crimes.
  • It is an independent body working directly under the aegis of Economic Intelligence Council (EIC) headed by the Union Finance Minister.

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