Market intermediaries can use a third party to carry out due diligence and determine the identity of clients and the beneficial owners of funds being handled by them.

While a strong defence mechanism exists in the Indian capital market regulatory system against money laundering or terror financing activities, a review became necessary to consolidate various initiatives undertaken by Sebi and the government over the years on this front.

Besides, certain changes and additional safeguards made it necessary to tackle challenges thrown up by technological and market advances and to harmonise the guidelines with new standards set by global bodies such as the FATF ( Financial Action Task Force).

Sebi has studied practices followed by its peers in some countries to understand the best regulatory framework to check money laundering and terror funding.

Besides, regulators are being extra watchful because of elections and the dealings of market entities with politically exposed persons are under greater scrutiny.

Sebi mandates that market entities deploy a "high risk" approach towards such clients, including individuals entrusted with prominent public functions, heads of governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations and important political party officials.

A similar approach is needed for accounts of the family members or close relatives of politically exposed persons.

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