India's top financial regulators are asking entities from mutual funds to brokers to banks to tighten their supervision and have also added fresh regulations as they prepare for a review by the global money-laundering watchdog, according to three sources.
The Financial Action Task Force, an inter-governmental organisation to combat money laundering, is due to conduct an onsite review of India's regulations and supervision in November.
While India is compliant with FATF regulations, any gaps found in its preparedness to combat money laundering could lead to adverse comments or, at worst, impact its rating and make it costlier for global firms to do business in the country.
"Any drop in ratings can affect India and its institutions' ability to do business with global financial institutions," said an industry official. The official and other sources declined to be named as they are not authorised to speak to the media.
The FATF rates India 'compliant', the highest of its three-tier rating scale that includes 'grey' and 'black'. That review was in 2010 and a fresh one has been delayed due to COVID-19.
To ensure that it maintains the top-tier rating, India's market regulator has, since January this year, tweaked a number of rules to meet FATF requirements, said a regulatory official.
The Securities and Exchange Board of India has made chief executives of broking houses directly responsible for monitoring suspicious transactions.
It has asked broking houses and asset management companies (AMC) to set up an institutional mechanism to handle fraudulent transactions and made the chiefs of AMCs accountable to curb front running.
The SEBI has also asked all the entities it regulates for a list of clients, how often they check for suspicious transactions and the steps taken to investigate or monitor them, among other details, an industry official said.
The data submitted is being analysed for "any gaps in responsiveness towards suspicious transactions," the official said.
Other regulators are conducting a similar exercise, the regulatory official said.
"All these changes are aimed to strengthen the monitoring of suspicious transactions and show our efforts towards FATF compliance," said the regulatory official.
Not just regulators, but even the government has stepped up to plug gaps by expanding coverage of India's Prevention of Money Laundering Act (PMLA) to bring professionals such as auditors, company secretaries and directors under its fold.
In March, offshore funds were also asked to recognise holders of more than 10% in the fund as ultimate beneficial owners and report them.
Preparedness is being monitored at the highest level via a special committee which includes representatives from the finance ministry and regulators, said the regulatory official.