The document discusses regulatory compliance challenges and solutions. It notes that regulatory compliance is becoming more challenging due to increasing regulations from bodies like SEBI, RBI, and IRDA. Financial institutions struggle to keep up with the requirements at high cost. Riskpro provides regulatory alerts and compliance management webinars to help clients stay aware of regulations. Automated compliance solutions can automate much of the process, while issues tracking helps manage non-compliance.

1. Regulatory Compliance Advisory
RBI Circular Synopsis – July – Aug 2011
Riskpro, India
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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.
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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
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4. Investment in the Units of Domestic Mutual Funds 1
Background
Hitherto, 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 the
same 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 schemes
of 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 MFs
issued by the SEBI registered domestic MFs:
i) Direct Route - SEBI registered Depository Participant (DP) route
ii) 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).
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5. Investment in the Units of Domestic Mutual Funds 2
1. 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.
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6. Security Issues and Risk Mitigation measures related to
Card Not Present (CNP) Transactions 1
Background
While customers like to do their transactions from a merchant entity or home or internet café, if they
think 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 factor
of 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.
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7. Security Issues and Risk Mitigation measures related to
Card 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
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8. Comprehensive guidelines on Derivatives – Modifications 1
RBI has included / modified some of the terms in the Suitability and Appropriateness Policy for offering
of 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.
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9. Comprehensive guidelines on Derivatives – Modifications 2
1. 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.
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10. Other Miscellaneous RBI Circulars
Misuse of Banking Channels – Issue and Payment of Demand Drafts for
Rs.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.
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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
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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.
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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 services
SERVICES
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
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14. Contacts and Office Locations
Corporate 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.in
Ahmedabad Pune Agra
Maulik Manakiwala M.L. Jain Alok Kumar Agarwal
Associate Firm Principal – Strategy Risk Associate Firm
M - 91 9825640046 M- 9822011987 M- 99971 65253
mljain@riskpro.in
Gourav Ladha
Sap Risk Advisory
M- 97129 52955
THANKS
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