Riskpro's RBI Regulatory Compliance Alerts
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Transcript of Riskpro's RBI Regulatory Compliance Alerts
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Regulatory Compliance AdvisoryRBI Circular Synopsis – July – Aug 2011
Riskpro, India
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Regulatory Compliance – Challenges & Solutions
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
Challenges
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.
Solutions
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Source of Promoter Equity in NOHC should be transparent /verifiable.
THE NEW BANKING FRAMEWORK
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
ONLY NON FINANCIAL Entities / groups / operating in the private
sector; owned and controlled by Residents can promote NOHC
(Diversified ownership, sound credentials, 10+ years track record,
Management to be professional with adequate corporate governance standards )
NOT ALLOWED
Entities / groups / having greater
than 10% income/assets in real
estate construction and broking
activities in last 3 years
NEW BANK~ Minimum capital - Rs 500 Crore ~ Business Model to RBI
~ Existing NBFC can turn a Bank only if ALL activities permitted in Banks
~ No shareholder, group to own 10%+ in New Bank except NOHC
~ Arm’s length relationship with promoter group entities
~Listed on Exchange in 2 years ~ CAR 12% for 3 years
~ 25% branches in unbanked rural centres
~ Group exposure as % of net-worth: Max 10% single; 20% all entities
~ New Bank on CBS, use Technology, innovation, have grievance cell
OTHER GROUP FINANCIAL
ENTITIES
~ Compulsory ownership by NOHC
of ALL financial entities of the
Promoter group. Ie financial entities
to be under the NOHC umbrella
~ Cannot do any activity that is
Banking in nature. To move all such
activities to new Bank.
~ No new Financial entity for 3 years
from bank License date
Shareholder Holding Period
NOHC Min 40% at inception Lock in 5 years
Max 40%, 20%,12% Year 2, 10,12
Foreign Holding Max 49% 5 Years. 5+ years, as per policy.
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Investment in the Units of Domestic Mutual Funds
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
As per SEBI guidelines, Mutual Funds have to be
registered with SEBI. Mutual Funds are regulated
entities that are supposed to be registered with
Securities & Exchange Board of India (SEBI).
Qualified Foreign Investors (QFI):
QFIs are non-resident investors (other than SEBI
registered FIIs and FVCIs) who meet the KYC
requirements of SEBI.
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Investment in the Units of Domestic Mutual Funds
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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Security Issues and Risk Mitigation measures related to
Card Not Present (CNP) Transactions
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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Security Issues and Risk Mitigation measures related to
Card Not Present (CNP) Transactions
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.
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CNP Transactions
CNP transactions are those that pass through
electronically from the bank to the merchant for
purchase / availing of goods / services. Information like
Card No., CVV number etc., would flow from the
secured website of the merchant to the switch service
provider to the card issued bank and the payment
would be made through the Payment Gateway.
Additional Security Measure
While passing through the CNP transactions, a type of
verification is being insisted. This verification shall not
be information that is available on the card. This is
because if a third party knows the information available
on the card, he will put through the CNP transactions. It
is a risk mitigation factor to insist on the information that
is not available on the card
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Comprehensive guidelines on Derivatives – Modifications
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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Comprehensive guidelines on Derivatives – Modifications
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.
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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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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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Web Based Regulatory Compliance 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
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
Why
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.
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.
How
Training can be delivered as low as Rs 200 / employee / per session.
We can discuss your training requirements and provide final quoteHow Much
TRAINING
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Who is Riskpro… Why us?
ABOUT US Riskpro is an organisation of member firms
around India devoted to client service excellence. Member firms offer wide range of services in the field of risk management.
Currently it has offices in three major cities Mumbai, Delhi and Bangalore and alliances in other cities.
Managed by experienced professionals with experiences spanning various industries.
MISSION
Provide integrated risk management consulting services to mid-large sized corporate /financial institutions in India
Be the preferred service provider for complete Governance, Risk and Compliance (GRC) solutions.
VALUE PROPOSITION You get quality advisory, normally delivered
by large consulting firms, at fee levels charged by independent & small firms
High quality deliverables
Multi-skilled & multi-disciplined organisation.
Timely completion of any task
Affordable alternative to large firms
DIFFERENTIATORS
Risk Management is our main focus
Over 200 years of cumulative experience
Hybrid Delivery model
Ability to take on large and complex projects due to delivery capabilities
We Hold hands, not shake hands.
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Risk Management Advisory Services
Training Recruitment
Basel II/III Advisory Market Risk
Credit Risk
Operational Risk
ICAAP
Corporate Risks Enterprise Risk Assessment
Fraud Risk
Risk based Internal Audit
Operations Risk
Forensic services
Information Security IS Audit
Information Security
IT Assurance
IT Governance
Operational Risk Process reviews
Policy/ Process Review
Process Improvement
Compliance Risk
Governance Corporate Governance
Business Strategic risk
Fraud Risk
Forensic Accounting
Other Risks Business/Strategic Risk
Reputation Risk
Outsourcing Risk
Contractual Risk
Banking – E Learning
Corporate Training
Regular Risk Management Training
Online Training material
Workshops / Events
Virtual Risk Managers
Full Time Risk Professionals
Part time Risk Professionals
Risk Managers on call – free
S E
R V
I C
E S
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Contacts and Office Locations
THANKS
Corporate Mumbai Delhi Bangalore
www.riskpro.in
Manoj Jain
Director
M- 98337 67114
Shriram Gokte
Principal - Information Risk
M- 98209 94063
Rahul Bhan
Director
M- 99680 05042
Raj Sawhney
Principal – Business Risk
M- 99711 03510
Casper Abraham
Director
M- 98450 61870
Ahmedabad Pune Agra
Maulik Manakiwala
Associate Firm
M - 91 9825640046
Gourav Ladha
Sap Risk Advisory
M- 97129 52955
M.L. Jain
Principal – Strategy Risk
M- 9822011987
Alok Kumar Agarwal
Associate Firm
M- 99971 65253