FIU-IND: Qualification & Responsibilities of PO for VDA SPs

FIU-IND Guidelines on Qualification & Responsibilities of Principal Officers for Virtual Digital Asset Service Providers

The Financial Intelligence Unit-India has outlined specific guidelines regarding the qualifications and responsibilities of the Principal Officer (PO) for Virtual Digital Asset Service Providers. These guidelines are designed to ensure compliance with the Prevention of Money Laundering Act 2002 and to mitigate risks associated with money laundering and terrorist financing. These guidelines, approved by the Director of FIN IND, aim to strengthen the compliance framework within the VDA sector, ensuring that Principal Officers are equipped to effectively manage and mitigate risks associated with virtual digital assets.

Key Requirements for Principal Officers in relation for Virtual Digital Asset Service Providers

1. Management Level Position: The Principal Officer must hold a management-level position within the organization.

2. Exclusive Focus: To prevent conflicts of interest, the Principal Officer should be dedicated solely to responsibilities under Chapter IV of the Prevention of Money Laundering Act 2002 and should not engage in other business operations.

3. Full-Time Engagement: The Principal Officer must be exclusively employed by a single Virtual Digital Asset Service Providers on a full-time basis, without any concurrent engagements elsewhere.

4. Authority and Independence: The Principal Officer should possess sufficient seniority to perform duties autonomously, free from internal bureaucratic hindrances or undue influence.

5. Relevant Experience: A minimum of three years of experience in legal and compliance matters related to anti-money laundering is required. The Principal Officer should be well-versed in the obligations under the Prevention of Money Laundering Act, associated rules, and regulations.

6. Risk Awareness: The Principal Officer should have comprehensive knowledge of money laundering and terrorist financing risks pertinent to the country, the organization, and the Virtual Digital Asset Sector. Staying informed about emerging trends and typologies in these areas is essential.

7. Participation in Risk Committees: The Principal Officer should be a permanent invitee to high-level committees that assess risks associated with products, services, and delivery channels, ensuring proper identification and mitigation of money laundering and terrorist financing risks.

8. Adequate Resources: The Principal Officer must have access to sufficient resources, including support staff with necessary expertise, and unhindered access to relevant information to effectively monitor transactions and implement the organization’s anti-money laundering/Countering Financing of Terrorism program.

9. Prompt Information Sharing: The organization should have internal guidelines to ensure that the Principal Officer can promptly respond to information requests from Financial Intelligence Unit-India, law enforcement agencies, or regulators.

10. Regular Reporting: The Principal Officer should present regular reviews or status updates of the anti-money laundering /Countering Financing of Terrorism function to the Board or a Board sub-committee, preferably on a quarterly basis.

11. Location Preference: It is preferable for the Principal Officer to be based in India to effectively handle obligations related to the Virtual Digital Asset sector.

Compliance obligations framework of Service Providers including Virtual Digital Asset Service Providers

These obligations emphasize the compliance framework that Service Providers (SPs), including Virtual Digital Asset Service Providers (VDA SPs), must adhere to under the Prevention of Money Laundering Act (PMLA) and its rules. Here’s a breakdown:

Registration of Service Providers’s as Reporting Entities with Financial Intelligence Unit-India

This regulatory framework is essential for financial integrity, ensuring that Service Providers  proactively identify and mitigate risks associated with virtual digital assets. As per Rule 2(wa) and Rule 2(sa) of Prevention of Money Laundering Act, all SPs must register as Reporting Entities with Financial Intelligence Unit-India. During registration, Service Providers must disclose their bank and financial institution (FI) account details where:

• • Transactions related to their business are conducted.
  • Client Money is held.

AML/CFT/CPF Program:

As per Rule 7(3) of the PML Rules (Prevention of Money Laundering  Regulation), Service Providers must establish an internal mechanism to detect and report transactions related to:

• • Money Laundering
  • Terrorist Financing
  • Proliferation Financing
  • Other serious financial crimes
• Service Providers must ensure compliance with Rule 3(1) by:
  • Identifying and monitoring suspicious transactions.
  • Furnishing reports on such transactions to FIU-IND.

Obligation of Reporting Entities under Rule 7(4) of PMLR

Under Rule 7(4) of the PML Rules (PMLR), Reporting Entities including Service Providers and Virtual Digital Asset Service Providers must implement effective internal controls to prevent and impede:

• Money Laundering
• Terrorist Financing
• Proliferation Financing

This obligation extends to Designated Director, Principal Officer (PO) and All officers and employees

Requirement for a Robust AML/CFT/CPF Program: 

This framework is critical for Service Providers to comply with legal obligations and mitigate financial crime risks in the Virtual Digital Assets (VDA) sector. To fulfill their statutory responsibility, Service Providers must:

1. Establish an AML/CFT/CPF framework with proper risk assessment.
2. Monitor and detect suspicious transactions linked to money laundering, terrorism financing, or proliferation financing.
3. Implement internal controls to ensure compliance at all levels.
4. Train employees on AML/CFT/CPF policies and emerging financial crime trends.
5. Report detected transactions to Financial Intelligence Unit-India in a timely manner.