Fearing possible black money flow and terror financing risks from Iran and North Korea into the Indian stock market, the Securities and Exchange Board of India has asked bourses to be cautious in dealings with funds and entities from those countries.

The National Stock Exchange's investigation department on Tuesday said in a circular to the bourse's members that Sebi, in a letter dated May 5, has informed it about Iran and North Korea not having appropriate 'anti-money laundering and combating the financing of terrorism (AML/CFT)' norms.

Sebi has sent to the bourses a global caution notice against the two countries from FATF (Financial Action Task Force), an inter-governmental body that makes policies to combat money laundering and terror funding, in this regard.

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The Sebi advisory to stock exchanges, who work as front-line regulators for Indian market, follows a similar warning from the Reserve Bank of India to banks and financial institutions in March.

The FATF warning was issued on February 25, 2011, where it asked its member countries 'to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing risks emanating from Iran and the Democratic People's Republic of Korea'.

Following the Sebi advisory, NSE has asked various market entities to 'take note of the above (FATF warning) and ensure compliance with the same'.

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An FATF public statement is always followed up by various regulators in India and other member countries, asking the entities regulated by them to exercise extra caution in dealings with countries where anti-money laundering and terror-financing regulations have deficiencies.

The RBI and Sebi had last issued such a warning in January about Iran, pursuant to a directive from the FATF.

India became a member of the FATF last year. Following the nation's accession into the global body, it is required to follow the global standards prescribed by the FATF to check money laundering and terror-financing activities.

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As per the FATF warning, all financial institutions have been advised to give special attention to business relationships and transactions with Iran and North Korea, as well as their companies and financial institutions.

The FATF has urged member countries to take into account the risk of money laundering and terror-financing when considering requests by Iranian and North Korean financial institutions to open branches and subsidiaries.

Iran and North Korea have been subjected to various sanctions by the United States and some European countries to thwart the flow of funds allegedly used to finance their nuclear weapon ambitions and sponsor terror-related activities.