{"id":3606,"date":"2021-03-24T09:52:40","date_gmt":"2021-03-24T09:52:40","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=3606"},"modified":"2021-03-24T09:52:42","modified_gmt":"2021-03-24T09:52:42","slug":"terrorist-financing-and-money-laundering-for-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/terrorist-financing-and-money-laundering-for-nbfcs\/","title":{"rendered":"A Complete Guide on Terrorist Financing and Money Laundering for NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The RBI\nor the Reserve Bank of India has issued a notification for a modification to\nMaster Director on KYC wherein the regulated companies must occasionally carry\nout Terrorist Financing and Money Laundering for <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFCs<\/a><\/strong>\nrisk assessment activities, and the first assessment is mandatory to be carried\nout by June 30, 2020. Scroll down to check more information regarding Terrorist\nFinancing and Money Laundering for NBFCs.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3af4222f963\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3af4222f963\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/terrorist-financing-and-money-laundering-for-nbfcs\/#Understand_the_Idea_of_Terrorist_Funding_and_Money_Laundering_Risk_Assessment\" title=\"Understand the Idea of Terrorist Funding and Money Laundering Risk\nAssessment\">Understand the Idea of Terrorist Funding and Money Laundering Risk\nAssessment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/terrorist-financing-and-money-laundering-for-nbfcs\/#What_is_the_Procedure_of_Risk_Assessment_by_NBFCs\" title=\"What is the Procedure of Risk Assessment by NBFCs?\">What is the Procedure of Risk Assessment by NBFCs?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/terrorist-financing-and-money-laundering-for-nbfcs\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understand_the_Idea_of_Terrorist_Funding_and_Money_Laundering_Risk_Assessment\"><\/span>Understand the Idea of Terrorist Funding and Money Laundering Risk\nAssessment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This idea arises from the recommendations of the <strong>FATF or Financial Action Task Force<\/strong>. It has offered detailed guidance on Terrorist Financing and Money Laundering risk assessment, and it is specially made for current NBFCs (Non-Banking Financial Companies). Terrorist financing is a risk that functions via consequences and susceptibility. It is mentioned as a non-legitimate method of fundraising for Terrorist Organizations.<\/p>\n\n\n\n<p><strong>Also, Read: <\/strong><mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/operational-manual-of-the-nbfcs\/\">Operational Manual of the NBFCs: A Complete Guide<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Procedure_of_Risk_Assessment_by_NBFCs\"><\/span>What is the Procedure of Risk Assessment by NBFCs?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The procedure of Risk Assessment by Non-Banking Financial Companies does not require to be complicated, but it must be proportionate with the nature and size of its business. A simple risk assessment if enough for especially less difficult Non-Banking Financial Companies. The process of the risk assessment process by Non-Banking Financial Companies based on the guidelines of FATF principles are divided into the following phases:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Procedure-of-Risk-Assessment-by-NBFCs.png\" alt=\"Procedure of Risk Assessment by NBFCs\" class=\"wp-image-3608\" width=\"574\" height=\"296\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Procedure-of-Risk-Assessment-by-NBFCs.png 901w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Procedure-of-Risk-Assessment-by-NBFCs-300x155.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Procedure-of-Risk-Assessment-by-NBFCs-768x396.png 768w\" sizes=\"(max-width: 574px) 100vw, 574px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Collection of Information<\/em><\/strong><strong>:<\/strong> The procedure of risk\nassessment by NBFCs starts with collecting the information on various variables\nlike information of the commoncriminal environment, terror threats and\nfinancing, etc. Such information can be collected internally or externally. The\n<strong><em>Directorate\nof Enforcement<\/em><\/strong> deals with the matters of terrorist financing and money\nlaundering in India. It has detailed information and the terrorist list.\nFurthermore, the information can also be availed from the <strong><em>CBI or Central Bureau of\nInvestigation<\/em><\/strong>.<\/li><li><strong><em>Threat Identification<\/em><\/strong><strong>:<\/strong> once they collected all the\ninformation, the jurisdiction and the sector-specific threats must be\nidentified on the basis of such collected information. Although the treat\nidentification should be based on the domestic\/national level, it should not be\nrestricted to it only. It should be associated with the nature and size of the\nbusiness entity. The Non-Banking Financial Companies should look at the\ncontrols that are located, including the quality of Risk Management Policy,\nworking of internal functions, etc.<\/li><li><strong><em>Analysis of Terrorist Funding\nand Money Laundering Threats &amp; Susceptibilities<\/em><\/strong><strong>:<\/strong> In this procedure, it should\nbe known how the identified threats are going to affect the entity or\norganization. Some factors like scale, complexity, nature, and diversity of\ntheir business should be considered during the risk assessment. Apart from\nthis, the governing findings and the internal audit must also be considered.\nThe size and capacity of its transaction must be kept in the picture during the\nrisk assessment. The Non-Banking Financial Companies should complement this\ninformation with the information received from external sources and internal\nsources.<\/li><li><strong><em>Risk Mitigation<\/em><\/strong><strong>:<\/strong> Once the threats and\nvulnerabilities are analyzed or examined, the Non-Banking Financial Companies\nare required to progress and implement policies to mitigate the risks\nassociated with Terrorist Financing and Money Laundering. The process of <strong><em>CDD\nor Customer Due Diligence <\/em><\/strong>should be informed to recognize and identify\nby their customers by requiring them to gather information on their profession\nand the need for financial services by them:<\/li><\/ul>\n\n\n\n<ol><li><strong><em>Customer Due Diligence Procedures<\/em>:<\/strong> Starting the procedure for Customer Due Diligence (CDD) is the first step while starting with the customer relationship. This procedure identifies a customer, and acustomer\u2019s risk-based assessment is conducted. CDD procedures should also include checkpoints with regards to Terrorist Financing and Money Laundering. The activity of a customer or business\u2019s nature is also understood in the procedure of Customer Due Diligence. Misuse of a legal person for conducting Terrorist Financing and Money Laundering must be prevented by taking some measures.<\/li><li><strong><em>Ongoing Observing and CDD<\/em>:<\/strong> Ongoing observing is the examine of the transactions to know if the transactions are reliable with the Non-Banking Financial Companies customer\u2019s knowledge and the loan product\u2019s nature and business relationship. Observing can help in identifying doubtful transactions.<\/li><li><strong><em>Reporting<\/em>:<\/strong> The Non-Banking Financial Companies must mark the unfamiliar movements of funds for analysis, and there should be a case management system so that such type of funds are examined timely, and it can be determined if the funds or the transactions are mistrustful. Those funds that are suspicious should be reported to the <strong><em>Financial Intelligence Unit or FIU<\/em><\/strong> in the manner stated by the authorities. <\/li><li><strong><em>Internal Control<\/em>:<\/strong> For proper risk alleviation, it is vital to have satisfactory internal controls. These internal controls include governance arrangements where the responsibility for CFT and Anti-Money Laundering is clearly assigned, and proper omission is in place to examine the usefulness of Non-Banking Financial Company policies and processes to identify the monitor risk and assess. <\/li><li><strong><em>Training and Recruitment<\/em>:<\/strong> Non-Banking Financial Companies must make sure that the employees that they hire have honesty and are highly skilled enough, and own the expertise and the understanding to perform their functions. The employees and the worker should be trained to assess the quality of Non-Banking Financial Companies Terrorist Financing and Money Laundering Risk Assessments. Sufficient training shall help them to form sound judgments concerning the capability and the proportionality of the Anti <a href=\"https:\/\/en.wikipedia.org\/wiki\/Money_laundering\">Money Laundering<\/a> controls.<\/li><\/ol>\n\n\n\n<ul><li><strong><em>Post Compliances<\/em><\/strong><strong>:<\/strong> After completing the\nassessment, the risk impact must be recorded, and measures to alleviate the\nrisks must be provided. The information founding the basis of the risk\nassessment process and must be updated from time to time; where there is an\nimportant change in the information, the risk assessment process should be\ncarried out.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The compliance officer of Non-Banking Financial Company must be given the authority, right, resources so that the tasks can be carried out with his knowledge, consisting of access to all the related internal information. Only then productivity can be actually brought out, and the risk of money laundering and terrorist financing can be alleviated. Non-Banking Financial Companies should take some steps so that they are satisfied with their CFT or AML policies, and regulators are followed.<\/p>\n\n\n\n<p><strong>Also, Read: <\/strong><mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/\">What are the Major Challenges and Remedies by NBFCs? \u2013 An Overview<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI or the Reserve Bank of India has issued a notification for a modification to Master Director on KYC wherein the regulated companies must occasionally carry out Terrorist Financing and Money Laundering for NBFCs risk assessment activities, and the first assessment is mandatory to be carried out by June 30, 2020. 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