Share trades above Rs10 lakh a day now face source-of-funds checks

Active investors in Nepal now face a new compliance wall: cross Rs10 lakh of share trades in a day and the source of the money has to be documented. Anyone crossing that line — in one order or several — sits inside a reporting chain that runs from the broker to the Financial Information Unit under Nepal Rastra Bank, which must get the details within 15 days of the trade.

A rulebook for the settlement layer

The mechanism is the Securities Board of Nepal's directive against money laundering and terrorist financing, issued on 30 Ashoj and effective the same day, on the eve of the Dashain break. It binds brokers, merchant bankers, the stock exchange and other intermediaries. Account opening is where the identity burden lands: clients are matched against the electronic record of a national identity card, with a biometric captured at opening and the applicant's location fixed for remote accounts. Settlements move only by account-payee cheque or electronic transfer; funds from an unrelated third party's account are barred, and business payments cannot go through personal accounts.

Suspicion runs on a clock

Beyond the paperwork, suspicion runs its own clock. An unusual or doubtful trade must be reported immediately; an attempted suspicious transaction has to be examined and reported within three days; and if a client seems to have sensed the scrutiny, the intermediary stops and files directly. Domestic and foreign politically exposed persons, their families and close relatives get a dedicated identification mechanism, records held at least ten years after they leave office and identity details refreshed within six months. Trades in a minor's name, deals that do not change real ownership, transfers of rights entitlements and off-system bulk transactions are flagged for special attention.

Cost of getting it wrong

Investment companies with paid-up capital of Rs5 crore or more, or annual securities turnover above Rs10 crore, must register with the board, identify true owners and file risk assessments on senior involvement or loan exposure. Intermediaries, directors or office-holders who fail to implement the rules face fines from Rs10 lakh to Rs5 crore, removal from office, or both.

A market that had just turned

The tape heading into the rule was firming, not cracking. NEPSE closed at 2,634.17 on 16 October, up 8.23 points (0.31 per cent), completing seven straight sessions that added 62 points; market capitalisation stood at Rs45 kharba 34 arba (about Rs4.53 trillion). The gains concentrated in banking, development banks, non-life insurers and other slow-moving groups, so the strength into the announcement was broad-based rather than a chase into speculative names. With the exchange closed for Dashain since, there is no post-announcement session data yet to show whether the documentation burden thins the large-ticket activity that carries turnover.

Analyst Dev Guraagain says panic is unwarranted: anti-money-laundering law is not new and the board's provisions are not unusually harsh. The first test comes when trading resumes after the Dashain break, with a full week of volume showing whether the new paperwork is biting. The first 15-day filing cycle to the Financial Information Unit, and the six-month deadline for refreshing exposed-person records, follow.