The Parliament's Standing Committee on Finance has recommended that the Securities and Exchange Board of India and the Reserve Bank of India set up a co-ordination mechanism to monitor funds flow in the stock market.
This recommendation is a part of the Committee's report on ‘The Prevention of Money Laundering (Amendment) Bill, 2011'. The report was submitted on Wednesday. Now, the Government will consider all the suggestions before bringing the Bill for consideration and passage in Parliament.
While noting that Participatory Notes (PNs) were being issued by regulated entities, the Committee said it was surprised to learn that “other investments, including foreign currency flows by both individual and institutional investors, are not being monitored by SEBI.”
The committee suggested a joint coordination mechanism to properly monitor fund flows in stock/securities market.
Beneficial Ownership
One of the proposed amendments in the Bill contemplates that identification of beneficial owners is to be done by the reporting entity. The Union Government will specify the categories of customers in respect of whom banks will be required to identify the real beneficial owners of an asset.
Experts feel that even if such requirement is restricted to certain specific clients, ascertaining beneficial owners will be extremely difficult for banks.
Key provisions of Bill
The Finance Ministry said that such a provision is in conformity with the Financial Action Task Force (FATF) norms. Still, the committee recommended that along with reporting entities, clients may also be required to declare beneficial ownership while undertaking transactions with banks.
The Bill, introduced in the Lok Sabha last December, provides for attachment and confiscation of the proceeds of crime even if there is no conviction, so long as it is proved that that offence of money laundering has taken place and property in question is involved in the money laundering.
With the amendment, the Government aims to widen the definition of ‘financial institutions.'
Now, the definition will include a chit fund company, a housing finance company, a payment system operator, a non-banking financial company, the Department of Posts and intermediaries such as a stock broker, sub-broker, share transfer agent, besides others.
The new definition of persons carrying on designated business or profession will include casino operators, real estate agents and dealers in precious metals and stones.
It will also introduce the concept of reporting entity to include banks and financial institutions.