Mutual fund houses to submit report on suspicious transactions to intelligence unit next month
Ravi Samalad 29 July 2010

In a bid to prevent unauthorised funds from entering and exiting mutual funds, the Financial Intelligence Unit (FIU), is seeking its first submission of Suspicious Transaction Reports (STRs) from mutual fund (MF) registrar & transfer agents (RTAs) under the revised provisions of the Prevention of Money Laundering Act (PMLA). According to industry sources, RTAs like CAMS, Karvy and Deutsche Investor Services, which have been following STR procedures since 1 July 2010, will file their first sample report next month.

“The FIU is revising the STR reporting process. It expects RTAs to report directly to them,” a source familiar with the development told Moneylife, preferring anonymity.
The STR contains details of investors carrying out dubious transactions. For instance, if an investor requests an address change or switches money from one fund to another five times in a year, the details would be recorded by the vigilance team at the RTAs and sent to the concerned fund house. The fund house then will investigate these transactions for any possible suspicious activity.
These alerts are sent to Asset Management Companies (AMCs) and the concerned fund house further reviews it. If it finds the activity to be suspicious then these AMCs will report the same to the FIU. All the parameters are decided by FIU under PMLA guidelines.
“We don’t have cash transactions in mutual funds, so it is very difficult for us to find out suspicious transactions. Therefore, it was decided that any unusual activity which is different from normal behaviour has to be tracked. It is an alert mechanism to trace suspicious elements. So it needs more investigation from the compliance side of the AMCs. Once it is classified as ‘suspicious’ then fund houses report these transactions to the FIU. The onus is more on the AMCs. They have to be doubly sure. This is being done to review what RTAs are doing, and to ensure that some quality alerts are generated. The parameters are confidential and are not supposed to be discussed in the public domain for security reasons,” said a source from the industry.
Earlier in February, the revised guidelines were contemplated in a meeting held in New Delhi that was attended by top officials from the Association of Mutual Funds in India (AMFI), the Securities and Exchange Board of India (SEBI), various AMCs and RTAs.
During the meeting, FIU instructed AMFI to form a committee of six members comprising Reliance MF, UTI MF, HDFC MF, Karvy, CAMS and Deutsche Investor Services. This committee has recommended a few more alerts and STRs for MF investments.
The FIU has also instructed RTAs to furnish a consolidated STR across the fund houses serviced by respective RTAs. The date for implementing these new guidelines would be decided by industry body AMFI after studying the sample report sent by RTAs in August 2010.
Established in 2004, the FIU is the central national agency that analyses and disseminates information relating to dubious financial transactions. FIU is an independent body that reports to the Economic Intelligence Council (EIC) headed by finance minister Pranab Mukherjee.
Moneylife has a copy of the revised guidelines issued by the FIU. However due to security reasons, we have decided not to publish the details of the transaction parameters.
The reporting of STRs to the FIU will be entrusted with principal officers of AMCs. RTAs will facilitate the alert-generation mechanism to fund houses. The new parameters contain frequent changes in bank account details, threshold of investment limits and folios, redemptions, switchovers in a short span of time, transaction activities in schemes, etc. The guidelines are applicable for Indian residents, Non-resident Indians (NRIs) and companies.
R Balakrishnan
1 decade ago
Funny. Recently, M&M Finance advertised for fixed deposits. They indicated acceptance of up to Rs.15,000/- per deposit in CASH! RBI is behind SEBI in terms of regulatory check on Money Laundering.
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