Retention periods

An AML record is useless at the moment it is created. Its value appears years later, when an investigator needs to reconstruct who moved what, to whom, and when.

So the PMLA does not simply require records to be made — it requires them to survive. There are two clocks, and the reason students lose marks here is that they run from different events. Transaction records run five years from the transaction. Identity records run five years from the end of the relationship. A client who traded once in 2019 and closed his account in 2027 has transaction records that expire in 2024 and identity records that expire in 2032.

Section 12 of the PMLA sets both clocks:

The SEBI guidelines repeat both and add two more:

• Records of information relating to transactions, whether attempted or executed, which are reported to the Director, FIU-IND under Rules 7 and 8 — five years from the date of the transaction
• Registration records on the DARPAN Portal of NITI Aayog for a client that is a non-profit organisation — five years after the business relationship has ended or the account has been closed, whichever is later

The override. Where the records relate to an ongoing investigation, or to transactions that have been the subject of a suspicious transaction report, they shall be retained until it is confirmed that the case has been closed. That is not five years — it is indefinite, and it is the rule most often missed.

What the records must contain. Rule 4 requires enough to permit reconstruction of the individual transaction: the nature of the transaction, the amount and currency, the date, and the parties. For the audit trail, SEBI additionally requires the beneficial owner of the account, the volume of funds flowing through it, and for selected transactions the origin of the funds, the form in which they were offered or withdrawn, the identity of the person undertaking the transaction, the destination of the funds and the form of instruction and authority.

Deccan Securities Ltd reviews what it may destroy on 1 April 2025.

The arithmetic the exam wants. Ms Iyer's two clocks give 3 March 2026 and 30 June 2026 — different dates from the same client, because one runs from the transaction and the other from closure. The commonest wrong answer is to apply the later date to everything, or the earlier date to everything.

What it costs to get it wrong. The Way2Wealth Brokers order shows the shape of the consequence: FIU-IND imposed a monetary penalty of Rs 1 lakh under section 13(2)(d) together with detailed directions under sections 13(2)(a) and 13(2)(b), and required the reporting entity to return, within 30 days, a certification signed by its Designated Director and Principal Officer that the directed measures would be implemented.

Chapter 6 (SEBI Guidelines for AML, CFT and PF), section 6.2.9 (Retention of Records), read with section 12(3) and 12(4) of the PMLA from Chapter 2 and Rule 4 from Chapter 3. This is pure recall territory and the questions are usually arithmetic: a date, an event and a period, asking when the record may be destroyed. The "whichever is later" limb and the ongoing-investigation override are the two discriminating points.

• Two clocks, two starting events. Transaction records run from the transaction; identity records, account files and business correspondence run from the end of the relationship or closure of the account, whichever is later.
• "Whichever is later" is not "whichever is earlier". A relationship can end before the account is formally closed, or the other way round; you take the later of the two.
• An STR or an ongoing investigation suspends the clock entirely. Those records are kept until the case is confirmed closed, with no fixed period.
• Attempted transactions are retained too, not just executed ones — the SEBI guidelines say whether attempted or executed.
• Records may have to be kept even longer on demand. Where an investigating authority requires it, the intermediary shall retain records such as client identification, account files and business correspondence for periods that may exceed those required under the SEBI Act, the PMLA or exchange byelaws.
• Do not confuse the retention period with the reporting deadlines — the 15th of the succeeding month, seven working days for an STR, and the 15th of the month succeeding a quarter for immovable property are a different set of numbers entirely.