Screening Requirements for AIF Investor Onboarding: Complete SEBI Compliance Guide for Alternative Investment Funds (2025)

Screening Requirements for AIF Investor Onboarding: A Comprehensive Guide

Introduction

Alternative Investment Funds ("AIFs") in India operate in an increasingly complex regulatory environment where compliance with Know Your Customer ("KYC"), Anti-Money Laundering ("AML") and Combating the Financing of Terrorism ("CFT") regulations are paramount.

One of the critical components of onboarding an investor to the AIF is conducting thorough global screenings to ensure regulatory compliance and mitigate risks. This blog explores the mandatory and recommended screening requirements for AIFs when onboarding investors, as outlined in SEBI's Circulars.

"World-Check” – Trademark Ownership and SEBI AML Compliance Framework

It is important to note that “World-Check” is a trademark owned by Refinitiv, a company that provides risk intelligence solutions for anti-money laundering (AML) and know your customer (KYC) compliance. While the term “world-check” is commonly used in industry parlance to refer to database screening for financial crime risk, its technical and regulatory requirements for AML screening in India are governed by the Securities and Exchange Board of India (SEBI) through Master Circulars and related guidelines. These SEBI circulars specify mandatory standards for client due diligence, risk categorization, periodic review, ongoing monitoring, enhancement of screening tools, and reporting obligations for intermediaries and regulated entities, forming the backbone of AML compliance.

This clarification makes it clear that while “World-Check” is widely referenced as a screening tool, the actual compliance responsibilities and procedures are defined by SEBI’s regulatory framework, as outlined in circulars and the blog itself.

Key Regulatory Framework

The screening requirements for AIFs are primarily governed by two key regulatory documents:

1. SEBI Master Circular dated June 6, 2024: "Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT)/Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed thereunder" ("AML Master Circular")

2. SEBI Master Circular dated May 7, 2024: "Master Circular for Alternative Investment Funds (AIFs)" ("AIF Master Circular")

These circulars establish the framework for conducting comprehensive due diligence on prospective investors, including various screening requirements that constitute world-check procedures.

Key Screening Requirements

1. Jurisdiction Verification / Country Check

Before accepting investments, AIFs must verify that foreign investors meet specific jurisdictional requirements. As per the AIF Master Circular, Clause 4.1 states as follows:

"4.1. In terms of Regulation 10(a) of AIF Regulations, AIFs may raise funds from any investor whether Indian, foreign or non-resident Indians, by way of issue of units. At the time of on-boarding investors, the manager of an AIF shall ensure the following:

4.1.1. Foreign investor of the AIF is a resident of the country whose securities market regulator is a signatory to the International Organization of Securities Commission's Multilateral Memorandum of Understanding (Appendix A Signatory) or a signatory to the bilateral Memorandum of Understanding with SEBI.

For the purpose of the aforesaid clause, "Bilateral Memorandum of Understanding with SEBI" shall mean a bilateral Memorandum of Understanding between SEBI and any authority outside India that provides for information sharing arrangement as specified under clause (ib) of sub-section (2) of Section 11 of the Securities and Exchange Board of India Act, 1992.

AIFs may accept commitment from an investor being Government or Government related investor, who does not meet the aforesaid condition, if the investor is a resident in the country as may be approved by the Government of India.

4.1.2. The investor, or its beneficial owner as determined in terms of sub-rule (3) of rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, is not the person(s) mentioned in the Sanctions List notified from time to time by the United Nations Security Council and is not a resident in the country identified in the public statement of Financial Action Task Force as--

(i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or

(ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies."

2. Politically Exposed Persons (PEP) Screening

SEBI master circulars require that AIFs must implement robust systems to identify PEPs among their Investors and their beneficial owners.

PEPs have been defined under clause (db) of sub-rule (1) of rule 2 of the PML Rules, which provide as follows:

"Politically Exposed Persons" (PEPs) are individuals who have been entrusted with prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials;"

Clause 20 of the AML Master Circular provides:

"20. Registered intermediaries shall be in compliance with the following requirements while putting in place a CIP:

i. All registered intermediaries shall proactively put in place appropriate risk management systems to determine whether their client or potential client or the beneficial owner of such client is a politically exposed person. Such procedures shall include seeking relevant information from the client, referring to publicly available information or accessing the commercial electronic databases of PEPs.

ii. All registered intermediaries are required to obtain senior management approval for establishing business relationships with PEPs. Where a client has been accepted and the client or beneficial owner is subsequently found to be, or subsequently becomes a PEP, registered intermediaries shall obtain senior management approval to continue the business relationship.

iii. Registered intermediaries shall also take reasonable measures to verify the sources of funds as well as the wealth of clients and beneficial owners identified as PEP."

Additionally, Clause 18(ii)(e) of the AML Master Circular defines PEPs as part of Clients of Special Category requiring enhanced due diligence:

"e) Politically Exposed Persons" (PEPs). PEP shall have the same meaning as given in clause (db) of sub-rule (1) of rule 2 of the PML Rules. The additional norms applicable to PEP as contained in the subsequent paragraph 20 of the master circular shall also be applied to the accounts of the family members or close relatives / associates of PEPs;"

3. Sanctions List Screening

Multiple sanctions lists must be checked during the onboarding process to conduct a complete customer due diligence. The following sanctions list are have to be mandatorily checked:

1. List of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions.

2. List of Individuals and entities under the Unlawful Activities (Prevention) Act, 1967 (UAPA)

3. List of Individuals and entities suspected of having terrorist links which are approved by and periodically circulated by the United Nations Security Council (UNSC)

4. An updated list of individuals and entities which are subject to various sanction measures such as freezing of assets/accounts, denial of financial services etc., as approved by the Security Council Committee established pursuant to various United Nations' Security Council Resolutions (UNSCRs)

5. The "ISIL (Da'esh) & Al-Qaida Sanctions List", which includes names of individuals and entities associated with the Al-Qaida.

6. The list issued by United Security Council Resolutions 1718 of designated Individuals and Entities linked to Democratic People's Republic of Korea.

AIFs have to ensure that they do not onboard anyone whose name appears in said list. Further, the AIFs have to continuously scan all existing accounts to ensure that no account is held by or linked to any of the entities or individuals included in the list.

Clause 32 of the AML Master Circular requires:

"32. The risk assessment shall also take into account any country specific information that is circulated by the Government of India and SEBI from time to time, as well as, the updated list of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions."

Additionally, Clause 54 of the AML Master Circular mandates:

"54. The Stock exchanges and the registered intermediaries shall ensure that in terms of Section 51A of the Unlawful Activities (Prevention) Act, 1967 (UAPA) and amendments thereto, they do not have any accounts in the name of individuals/entities appearing in the lists of individuals and entities, suspected of having terrorist links, which are approved by and periodically circulated by the United Nations Security Council (UNSC)."

Clause 64 of the AML Master Circular provides specific details about the sanctions lists:

"64. An updated list of individuals and entities which are subject to various sanction measures such as freezing of assets/accounts, denial of financial services etc., as approved by the Security Council Committee established pursuant to various United Nations' Security Council Resolutions (UNSCRs) can be accessed at its website at https://press.un.org/en/content/press-release. The details of the lists are as under:

i. The "ISIL (Da'esh) & Al-Qaida Sanctions List", which includes names of individuals and entities associated with the Al-Qaida. The updated ISIL & Al-Qaida Sanctions List is available at: https://www.un.org/securitycouncil/sanctions/1267/press-releases;

ii. The list issued by United Security Council Resolutions 1718 of designated Individuals and Entities linked to Democratic People's Republic of Korea www.un.org/securitycouncil/sanctions/1718/press-releases.

65. Registered intermediaries are directed to ensure that accounts are not opened in the name of anyone whose name appears in said list. Registered intermediaries shall continuously scan all existing accounts to ensure that no account is held by or linked to any of the entities or individuals included in the list."

4. Designated Individuals List

The Ministry of Home Affairs maintains a list of individuals/entities designated as 'Terrorists' under Section 35(1) of UAPA 1967. Clause 62 of the AML Master Circular states:

"62. The Ministry of Home Affairs, in pursuance of Section 35(1) of UAPA 1967, declares the list of individuals/entities, from time to time, who are designated as 'Terrorists'. The registered intermediaries shall take note of such lists of designated individuals/terrorists, as and when communicated by SEBI."

The specific requirements of compliance with this list are detailed in Clause 59 of the AML Master Circular:

"59. The stock exchanges and registered intermediaries shall:

(i) Maintain the list of individuals/entities ("Designated List") and update it, without delay, in terms of paragraph 2.1 of the Order;

(ii) verify if the particulars of the entities/individual, party to the financial transactions, match with the particulars of the Designated List and in case of match, stock exchanges and registered intermediaries shall not carry out such transaction and shall immediately inform the transaction details with full particulars of the funds, financial assets or economic resources involved to the Central Nodal Officer ("CNO"), without delay. The details of the CNO are as under:

The Director
FIU-INDIA
Tel.No.:011-23314458, 011-23314459 (FAX)
Email: dir@fiuindia.gov.in

(iii) run a check, on the given parameters, at the time of establishing a relation with a client and on a periodic basis to verify whether individuals and entities in the Designated List are holding any funds, financial assets or economic resources or related services, in the form of bank accounts, stocks, insurance policies etc. In case, the clients' particulars match with the particulars of Designated List, stock exchanges and registered intermediaries shall immediately inform full particulars of the funds, financial assets or economic resources or related services held in the form of bank accounts, stocks or insurance policies etc., held on their books to the CNO, without delay;

(iv) send a copy of the communication, mentioned in paragraphs 59(ii) and 59(iii) above, without delay, to the Nodal Officer of SEBI. The communication shall be sent to SEBI through post and through email (sebi_uapa@sebi.gov.in) to the Nodal Officer of SEBI, Deputy General Manager, Division of FATF, Market Intermediaries Regulation and Supervision Department, Securities and Exchange Board of India, SEBI Bhavan II, Plot No. C7, "G" Block, Bandra Kurla Complex, Bandra (E), Mumbai 400 051;

(v) prevent such individual/entity from conducting financial transactions, under intimation to the CNO, without delay, in case there are reasons to believe beyond doubt that funds or assets held by a client would fall under the purview of Section 12A (2)(a) or Section 12A(2)(b) of the WMD Act;

(vi) file a Suspicious Transaction Report (STR) with the FIU-IND covering all transactions in the accounts, covered under paragraphs 59(ii) and (iii) above, carried through or attempted through."

5. Criminal Background Checks

Clause 18(vi) of the AML Master Circular explicitly requires criminal background screening:

"Necessary checks and balance to be put into place before opening an account so as to ensure that the identity of the client does not match with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency worldwide."

This requirement forms part of the Client Acceptance Policy that all registered intermediaries, including AIFs must develop.

6. Enhanced Due Diligence for Clients of Special Category

The AML Master Circular identifies specific categories of clients requiring enhanced due diligence. Clause 18(ii) provides:

"The registered intermediaries shall undertake enhanced due diligence measures as applicable for Clients of Special Category (CSC). CSC shall include the following:

a) Non - resident clients;

b) High net-worth clients;

c) Trust, Charities, Non-Governmental Organizations (NGOs) and organizations receiving donations;

d) Companies having close family shareholdings or beneficial ownership;

e) Politically Exposed Persons" (PEPs). PEP shall have the same meaning as given in clause (db) of sub-rule (1) of rule 2 of the PML Rules. The additional norms applicable to PEP as contained in the subsequent paragraph 20 of the master circular shall also be applied to the accounts of the family members or close relatives / associates of PEPs;

f) Clients in high risk countries. While dealing with clients from or situated in high risk countries or geographic areas or when providing delivery of services to clients through high risk countries or geographic areas i.e. places where existence or effectiveness of action against money laundering or terror financing is suspected, registered intermediaries apart from being guided by the FATF statements that inter alia identify such countries or geographic areas that do not or insufficiently apply the FATF Recommendations, published by the FATF on its website (www.fatf-gafi.org) from time to time, shall also independently access and consider other publicly available information along with any other information which they may have access to. However, this shall not preclude registered intermediaries from entering into legitimate transactions with clients from or situated in such high risk countries and geographic areas or delivery of services through such high risk countries or geographic areas. The intermediary shall specifically apply EDD measures, proportionate to the risks, to business relationships and transactions with natural and legal persons (including financial institutions) from countries for which this is called for by the FATF.

g) Non face to face clients - Non face to face clients means clients who open accounts without visiting the branches/offices of the registered intermediaries or meeting the officials of the registered intermediaries. Video based customer identification process is treated as face-to-face onboarding of clients;
h) Clients with dubious reputation as per public information available etc.

The above mentioned list is only illustrative and the intermediary shall exercise independent judgment to ascertain whether any other set of clients shall be classified as CSC or not."

7. Adverse Media Screening

While adverse media screening is not explicitly mandated in the June 2024 circular, it forms part of the broader due diligence framework. The requirement for "clients with dubious reputation as per public information available" under Clause 18(ii)(h) of the AML Master Circular suggests that checking publicly available adverse information is a prudent practice, particularly for enhanced due diligence cases.

Furthermore, the AML Master Circular requires the registered intermediaries, including AIFs to conduct a rigorous customer due diligence (CDD) process and obtain sufficient information about their clients using reliable and independent sources of identification. This indicates that an adverse media check may be required when onboarding an investor in an AIF.

Clause 16 of the AML Master Circular provides as follows:

"The CDD measures comprise the following:

i. Obtaining sufficient information in order to identify persons who beneficially own or control the securities account. Whenever it is apparent that the securities acquired or maintained through an account are beneficially owned by a party other than the client, that party shall be identified using reliable and independent client identification and verification procedures. The beneficial owner is the natural person or persons who ultimately own, control or influence a client and/or persons on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement;

ii. Identify the clients, verify their identity using reliable and independent sources of identification, obtain information on the purpose and intended nature of the business relationship, where applicable;

iii. Verify the client's identity using reliable, independent source documents, data or information. Where the client purports to act on behalf of juridical person or individual or trust, the registered intermediary shall verify that any person purporting to act on behalf of such client is so authorized and verify the identity of that person;

Provided that in case of a Trust, the reporting entity shall ensure that trustees disclose their status at the time of commencement of an account based relationship."

Clause 20 (iv) of the AML Master Circular requires identifying the client using reliable sources as follows:

"The client shall be identified by the intermediary by using reliable sources including documents / information. The intermediary shall obtain adequate information to satisfactorily establish the identity of each new client and the purpose of the intended nature of the relationship."

What is the result of conducting global AML and CFT screening?

Basis the screening report, AIFs have to classify their investors on factors of risk perception. The AML Master Circular also requires risk-based classification in Clause 18 (ii):

"(ii) Factors of risk perception (in terms of monitoring suspicious transactions) of the client are clearly defined having regard to clients' location (registered office address, correspondence addresses and other addresses if applicable), nature of business activity, trading turnover etc. and manner of making payment for transactions undertaken. The parameters shall enable classification of clients into low, medium and high risk. Clients of special category (as given below) may, if necessary, be classified even higher; Such clients require higher degree of due diligence and regular update of Know Your Client (KYC) profile."

Screening Requirements Summary Table

Screening Activity	Regulatory Status	Source Document	Key Requirements
Jurisdiction Check	Mandatory	AIF Master Circular (May 2024)	Verify investor's country is IOSCO MOU signatory or has bilateral MOU with SEBI
PEP Screening	Mandatory	AML Master Circular (June 2024)	Screen for PEPs, obtain senior management approval, verify source of funds
UN Sanctions Lists	Mandatory	AML Master Circular (June 2024)	Check UNSC sanctions lists including ISIL & Al-Qaida, DPRK lists
Designated Individuals List	Mandatory	AML Master Circular (June 2024)	Verify against MHA's list of designated terrorists
Criminal Background Check	Mandatory	AML Master Circular (June 2024)	Ensure no match with persons having criminal background
Adverse Media Check	Recommended	Best Practice	Screen for negative news, though not explicitly required in June 2024 circular

Implementation Best Practices

1. Technology Integration

Implement automated screening solutions that can efficiently check multiple databases and lists simultaneously, reducing manual effort and improving accuracy.

2. Risk-Based Approach

Develop a comprehensive Client Acceptance Policy that categorizes investors into risk tiers (low, medium, high) based on various factors including geographical location, nature of business, and transaction patterns.

3. Regular Updates

Establish processes for:

• Daily updates of global PEP lists, sanctions lists, criminal watchlists, debarred lists and designated lists.

• Periodic re-screening of existing investors.

• Immediate action protocols for positive matches.

4. Documentation and Record Keeping

Maintain comprehensive records of all screening activities, including:

• Screening dates and results

• False positive resolutions

• Senior management approvals for high-risk relationships

• Reporting to regulatory authorities when required

5. Training and Awareness

Ensure all personnel involved in investor onboarding are trained on:

• Latest regulatory requirements

• Screening procedures and tools

• Escalation protocols

• Red flag indicators

Conclusion

AML screening requirements for AIF investor onboarding represent a critical compliance obligation that goes beyond mere regulatory box-ticking. These screenings form the foundation of a robust AML/CFT framework that protects AIFs from regulatory penalties, reputational damage, and exposure to financial crime.

While certain screenings like jurisdiction checks, PEP screening, and sanctions list verification are explicitly mandatory, AIFs should consider implementing comprehensive screening programs that include recommended practices like adverse media checks. This holistic approach not only ensures regulatory compliance but also demonstrates a commitment to maintaining the highest standards of integrity in India's alternative investment ecosystem.

As regulatory requirements continue to evolve, AIFs must remain vigilant and adaptive, regularly reviewing and updating their screening procedures to align with the latest guidelines from SEBI and other regulatory authorities. By doing so, they can build trust with investors, regulators, and other stakeholders while contributing to a safer and more transparent financial system.

Disclaimer: This blog is for informational purposes only and should not be construed as legal advice. AIFs should consult with legal and compliance professionals to ensure their specific procedures meet all applicable regulatory requirements.