Riskpro's RBI Regulatory Compliance Alerts


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This document provides a summary of RBI circulars and aims at providing people with a quick snapshot of key requiremements in Banking as per RBI guidelines.

Riskpro's endevour is to simplify regulations for the users.

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Riskpro's RBI Regulatory Compliance Alerts

  1. 1. Regulatory Compliance Advisory RBI Circular Synopsis – July – Aug 2011 Riskpro, India 1
  2. 2. Regulatory Compliance – Challenges & Solutions Challenges Regulatory Compliance is increasing becoming more challenging. Global regulators, including Indian regulators such as SEBI, RBI, IRDA, are introducing significant regulatory reforms. Financial institutions are just not able to cope up with these requirements and often find themselves incurring significant costs and efforts to achieve compliance Regulatory non compliance attracts heavy penalties / loss of license and other measures Solutions Riskpro provides Regulatory alerts to clients to assist them with the knowledge sharing and awareness of regulatory requirements Riskpro’s compliance management webinars are offered for Free and open to all users to register and benefit from Industry experiences relating to Regulatory Compliance Automated compliance management solutions are usually able to automate a significant part of the compliance processes Issues and Action Plan modules enable Financial Institutions to manage non compliance and amend processes until completion. 2
  3. 3. THE NEW BANKING FRAMEWORK ONLY NON FINANCIAL Entities / groups / operating in the private NOT ALLOWED sector; owned and controlled by Residents can promote NOHC Entities / groups / having greater (Diversified ownership, sound credentials, 10+ years track record, than 10% income/assets in real Management to be professional with adequate corporate governance standards ) estate construction and broking activities in last 3 years Source of Promoter Equity in NOHC should be transparent /verifiable.RBI Should be able to regulate this consolidated group Non Operative Holding Company (NOHC) ~ Registered with RBI as NBFC ~ Regulated by RBI ~ Cannot borrow funds ~No operations, merely a holding company ~ 50% of Board of Directors totally independent of promoter group NEW BANK ~ Minimum capital - Rs 500 Crore ~ Business Model to RBI OTHER GROUP FINANCIAL ~ Existing NBFC can turn a Bank only if ALL activities permitted in Banks ENTITIES ~ No shareholder, group to own 10%+ in New Bank except NOHC ~ Arm’s length relationship with promoter group entities ~ Compulsory ownership by NOHC ~Listed on Exchange in 2 years ~ CAR 12% for 3 years of ALL financial entities of the ~ 25% branches in unbanked rural centres Promoter group. Ie financial entities ~ Group exposure as % of net-worth: Max 10% single; 20% all entities to be under the NOHC umbrella ~ New Bank on CBS, use Technology, innovation, have grievance cell ~ Cannot do any activity that is Shareholder Holding Period Banking in nature. To move all such activities to new Bank. NOHC Min 40% at inception Lock in 5 years ~ No new Financial entity for 3 years Max 40%, 20%,12% Year 2, 10,12 from bank License date Foreign Holding Max 49% 5 Years. 5+ years, as per policy. RING FENCED 3 STRUCTURE
  4. 4. Investment in the Units of Domestic Mutual Funds 1BackgroundHitherto, units of domestic Mutual Funds are permitted to be purchased, on repatriation basis, by FII(registered with SEBI) and NRI, subject to certain terms and conditions and limits as prescribed for thesame by the RBI and SEBI from time to time.Investment in SEBI registered domestic MFs:QFIs are now permitted to purchase, on repatriation basis, rupee denominated units of equity schemesof domestic MFs issued by SEBI registered domestic MFs.Investment routes The QFIs has two options to invest in rupee denominated units of equity schemes of domestic MFsissued by the SEBI registered domestic MFs:i) Direct Route - SEBI registered Depository Participant (DP) routeii) Indirect Route - Unit Confirmation Receipt (UCR) route SEBI Registered domestic Mutual Funds Qualified Foreign Investors (QFI): As per SEBI guidelines, Mutual Funds have to be QFIs are non-resident investors (other than SEBI registered with SEBI. Mutual Funds are regulated registered FIIs and FVCIs) who meet the KYC entities that are supposed to be registered with requirements of SEBI. Securities & Exchange Board of India (SEBI). 4
  5. 5. Investment in the Units of Domestic Mutual Funds 21. Impact on Banks  The permission to purchase domestic MFs by NRIs will open the opportunity for banks to tap the NRI customers for (i) opening of DP accounts (ii) Cross-selling of MFs (iii) Cross-selling for other NRI accounts – Terms and conditions specify “QFIs are not permitted to open a bank account in India”. (iv) Exchange profits (v) Banks having their branches abroad can open the Indian MFs accounts abroad for the purpose of collecting the subscription amounts.2. Impact on Indian Economy  Foreign exchange inflows will be increased. Rupee demand will increase thereby appreciation in rupee value can be expected. More economic investments in India will lead to economic growth of the country. Additional investment opportunities are provided for investment in the units of Infrastructure companies. India can see infrastructural development. 5
  6. 6. Security Issues and Risk Mitigation measures related toCard Not Present (CNP) Transactions 1BackgroundWhile customers like to do their transactions from a merchant entity or home or internet café, if theythink about the security measures it will be decided not to use at a new place.There are two types of transactions a customer can do. Transactions in the presence of the card, where the biometric engraved in the card would be read by the swiping machine and the password has to be entered by the card holder. Eg., ATM transaction. Transaction permitted when the card is not present, where the CVV number which is available on the backside of the card, has to be entered. Eg., Booking a ticket on line.As a security measure for the second type of transaction where the card is not present, additional factorof authentication is insisted upon. The authentication code should not be available on the card. There is no specific solution provided as how to introduce this, it is made mandatory that the additional factor of authentication should be in place before 1st May 2012. 6
  7. 7. Security Issues and Risk Mitigation measures related toCard Not Present (CNP) Transactions 2 1. Impact on Banks  Many customers, for whom cards are issued by the banks, are not utilizing the cards due to the distrust on the security measures for using the card.  Huge costs are involved for banks to plan and implement the card system.  Unless cards are utilized by the customers, banks cannot break even their implementation costs. Improving security measures will create trust in the minds of the customers to use their cards.  At the same time banks should keep up their security measures above the thinking level of fraudsters. CNP Transactions Additional Security Measure CNP transactions are those that pass through While passing through the CNP transactions, a type of electronically from the bank to the merchant for verification is being insisted. This verification shall not purchase / availing of goods / services. Information like be information that is available on the card. This is Card No., CVV number etc., would flow from the because if a third party knows the information available secured website of the merchant to the switch service on the card, he will put through the CNP transactions. It provider to the card issued bank and the payment is a risk mitigation factor to insist on the information that would be made through the Payment Gateway. is not available on the card 7
  8. 8. Comprehensive guidelines on Derivatives – Modifications 1RBI has included / modified some of the terms in the Suitability and Appropriateness Policy for offeringof derivative products. Market-makers should not undertake derivative transactions with or sell structured products to users that do not have properly documented policies regarding management of risks that include among other things, guidelines on risk identification, management and control. Before offering derivative products to clients, banks should obtain Board resolution of the company to undertake derivative transactions.  BR to be signed by a person other than the persons authorized to undertake the transactions;  be specific and should articulate specific products that can be transacted;  Mention the person(s) authorized to sign the ISDA and similar agreements;  Explicitly mention the limits assigned to a particular person;  Specify the names of the people to whom transactions should be reported by the bank. These personnel should be distinct from those authorized to undertake the transactions. No bank can be a market maker in a product it cannot price independently. This will also be applicable to deals undertaken on back-to-back basis. Similarly, foreign banks operating in India can be market makers for specific products only if they have the ability to price the products locally in India. The pricing of such products should be locally demonstrable at all times, particularly whenever RBI needs such evidence. Banks are required to obtain Board Resolution from the corporate that states certain clauses. 8
  9. 9. Comprehensive guidelines on Derivatives – Modifications 21. Impact on Banks  The Suitability and Appropriateness Policy is a risk mitigation factor for the banks, as the client, if do not understand the complexity of the derivative structures would sue the bank when they are at loss. The clarity from the corporate as who has to execute the derivative transactions, the corporate has appropriate risk management policy etc., are covered in the policy.2. Impact on Indian Corporates  Corporate clients who are executing the derivative products should have the appropriate risk management policy with them clearly stating the various requirements. The contents of the Board Resolution requirements are also specified and to be complied with. 9
  10. 10. Other Miscellaneous RBI CircularsMisuse of Banking Channels – Issue and Payment of Demand Drafts forRs.50,000 and above RBI reiterated the guidelines related to demand drafts, mail transfers, telegraphic transfers and travelers cheques, retail sale of gold / silver / platinum for Rs.50000 and above should be issued only by debit to the customer’s account or against cheques or other instruments and not against cash payment.Detection of Counterfeit Banknotes – Revised Procedure Till date, banks were required to file FIRs in all cases of counterfeit banknotes. Now, the procedure is modified that  For cases of detection of counterfeit notes up to 4 pieces, in a single transactions, a consolidated report at the end of the month is required.  For cases of detection of counterfeit notes of 5 or more pieces in a single transaction, FIRs should be lodged with the Nodal Police Station / Police Authorities as per the jurisdiction.Hedging Facilities for Non-Resident Entities. In order to facilitate greater use of Indian Rupee in trade transactions, it is allowed now to non- resident importers and exporters to hedge their currency risk in respect of exports from and imports to India, invoiced in Indian Rupees. Banks can provide additional service to their non-resident customers for hedging their currency risks arising out of genuine trade transactions involving exports from and imports to India, invoiced in Indian Rupees. 10
  11. 11. Web Based Regulatory Compliance Training TRAINING  Today organisations face immense regulatory, compliance and operational risks  People who execute key processes such as settlements, KYC, AML reviews, account openings, payment processing are some times not trained enough Why  Untrained people often make excessive errors or ignore key process controls  Web based training is a very cost effective way to impart knowledge to large employee base to minimize operational and reputational risks  This is not E – Learning. This is real industry experts talking about key issues.  A series of 5-10 sessions are customized and outlined that touch upon key risk issues and compliance requirements. How  Practical, industry knowledge is shared as the speakers are industry experts  The sessions are grouped with other users to bring down delivery costs. We can also deliver sessions exclusively for your organisation.  Training can be delivered as low as Rs 200 / employee / per session. How Much  We can discuss your training requirements and provide final quote 11
  12. 12. Who is Riskpro… Why us? ABOUT US MISSION Riskpro is an organisation of member firms around India devoted to client service  Provide integrated risk management excellence. Member firms offer wide range consulting services to mid-large sized of services in the field of risk management. corporate /financial institutions in India Currently it has offices in three major cities  Be the preferred service provider for Mumbai, Delhi and Bangalore and alliances complete Governance, Risk and Compliance in other cities. (GRC) solutions. Managed by experienced professionals with experiences spanning various industries. VALUE PROPOSITION DIFFERENTIATORS You get quality advisory, normally delivered by large consulting firms, at fee levels  Risk Management is our main focus charged by independent & small firms  Over 200 years of cumulative experience High quality deliverables  Hybrid Delivery model Multi-skilled & multi-disciplined organisation.  Ability to take on large and complex projects Timely completion of any task due to delivery capabilities Affordable alternative to large firms  We Hold hands, not shake hands. 12
  13. 13. Risk Management Advisory Services Basel II/III Advisory Corporate Risks Information Security  Market Risk  Enterprise Risk Assessment  IS Audit  Credit Risk  Fraud Risk  Information Security  Operational Risk  Risk based Internal Audit  IT Assurance  ICAAP  Operations Risk  IT Governance  Forensic servicesSERVICES Operational Risk Governance Other Risks  Process reviews  Corporate Governance  Business/Strategic Risk  Policy/ Process Review  Business Strategic risk  Reputation Risk  Process Improvement  Fraud Risk  Outsourcing Risk  Compliance Risk  Forensic Accounting  Contractual Risk Training Recruitment  Banking – E Learning  Virtual Risk Managers  Corporate Training  Full Time Risk Professionals  Regular Risk Management Training  Part time Risk Professionals  Online Training material  Risk Managers on call – free  Workshops / Events 13
  14. 14. Contacts and Office LocationsCorporate Mumbai Delhi Bangalore Manoj Jain Rahul Bhan Casper Abraham Director Director Director M- 98337 67114 M- 99680 05042 M- 98450 61870 info@riskpro.in manoj.jain@riskpro.in rahul.bhan@riskpro.in casper.abraham@riskpro.in www.riskpro.in Shriram Gokte Raj Sawhney Principal - Information Risk Principal – Business Risk M- 98209 94063 M- 99711 03510 shriram.gokte@riskpro.in raj.sawhney@riskpro.inAhmedabad Pune AgraMaulik Manakiwala M.L. Jain Alok Kumar AgarwalAssociate Firm Principal – Strategy Risk Associate FirmM - 91 9825640046 M- 9822011987 M- 99971 65253 mljain@riskpro.inGourav LadhaSap Risk AdvisoryM- 97129 52955 THANKS 14