Mumbai: The Reserve Bank of India (RBI) on Monday introduced certain principles, standards and procedures for medium and large non-banking financial companies.
The revised regulatory framework for NBFCs released in October 2021 had indicated that such entities in the upper tier (NBFC-UL) and middle layer (NBFC-ML) will be required to have an independent compliance function and a Chief Compliance Officer (CCO).
The central bank said compliance functions play an important role as part of the overall framework of corporate governance.
“Accordingly, keeping in view the principles of proportionality, it has been decided to introduce certain principles, standards and procedures for compliance work in NBFC-UL and NBFC-ML,” it said in a circular on Monday.
Upper layer and medium tier NBFCs should consider the prescription given in the circular only as a set of minimum guidelines and accordingly take into account their corporate governance structure, scale of operations, risk profile and organizational structure, among other factors. You should prepare your own guidelines. RBI said.
On the scope and coverage of the compliance function, RBI said the compliance function should ensure strict adherence to all statutory and regulatory requirements for NBFCs, including standards of market conduct, managing conflicts of interest, treating customers fairly and ensuring the suitability of customer service.
“The Board/ Board Committee shall ensure that an appropriate compliance policy is put in place and implemented. In addition, the Board/ Board Committee shall determine the periodicity for review of compliance risk,” it said.
As per the circular, NBFCs shall have a board approved compliance policy clearly stating their compliance philosophy, requirements on compliance culture, structure and role of compliance function, and role of CCO.
“The CCO shall be appointed for a minimum fixed tenure of at least 3 years. However, in exceptional cases, the Board/ Board Committee may relax the minimum tenure by one year, provided proper succession planning is put in place,” it said. . ,
The CCO should be transferred/removed only in exceptional circumstances with the explicit prior approval of the Board/Board Committee before completion of the term.
Also, the CCO should be a senior executive of the NBFC with a rank of not less than two levels below that of the CEO.
The circular further states that there should be no ‘dual hatred’ – no responsibility should be given to the CCO which brings in elements of conflict of interest, especially in any role related to business.
The middle tier includes all deposit taking NBFCs, irrespective of the size of the assets; NBFCs with asset size of Rs 1,000 crore and above; and NBFCs carrying out certain types of activities.
The upper layer includes those NBFCs which are specifically identified by RBI as having increased regulatory requirement.
The top ten eligible NBFCs in terms of their asset size always come at the top tier, irrespective of any other factor.
The circular states that NBFC-UL and NBFC-ML will have to undertake a board-approved policy and a compliance function, including appointment of a CCO, based on the latest framework by April 1, 2023 and October 1, 2023.
The revised regulatory framework for NBFCs released in October 2021 had indicated that such entities in the upper tier (NBFC-UL) and middle layer (NBFC-ML) will be required to have an independent compliance function and a Chief Compliance Officer (CCO).
The central bank said compliance functions play an important role as part of the overall framework of corporate governance.
“Accordingly, keeping in view the principles of proportionality, it has been decided to introduce certain principles, standards and procedures for compliance work in NBFC-UL and NBFC-ML,” it said in a circular on Monday.
Upper layer and medium tier NBFCs should consider the prescription given in the circular only as a set of minimum guidelines and accordingly take into account their corporate governance structure, scale of operations, risk profile and organizational structure, among other factors. You should prepare your own guidelines. RBI said.
On the scope and coverage of the compliance function, RBI said the compliance function should ensure strict adherence to all statutory and regulatory requirements for NBFCs, including standards of market conduct, managing conflicts of interest, treating customers fairly and ensuring the suitability of customer service.
“The Board/ Board Committee shall ensure that an appropriate compliance policy is put in place and implemented. In addition, the Board/ Board Committee shall determine the periodicity for review of compliance risk,” it said.
As per the circular, NBFCs shall have a board approved compliance policy clearly stating their compliance philosophy, requirements on compliance culture, structure and role of compliance function, and role of CCO.
“The CCO shall be appointed for a minimum fixed tenure of at least 3 years. However, in exceptional cases, the Board/ Board Committee may relax the minimum tenure by one year, provided proper succession planning is put in place,” it said. . ,
The CCO should be transferred/removed only in exceptional circumstances with the explicit prior approval of the Board/Board Committee before completion of the term.
Also, the CCO should be a senior executive of the NBFC with a rank of not less than two levels below that of the CEO.
The circular further states that there should be no ‘dual hatred’ – no responsibility should be given to the CCO which brings in elements of conflict of interest, especially in any role related to business.
The middle tier includes all deposit taking NBFCs, irrespective of the size of the assets; NBFCs with asset size of Rs 1,000 crore and above; and NBFCs carrying out certain types of activities.
The upper layer includes those NBFCs which are specifically identified by RBI as having increased regulatory requirement.
The top ten eligible NBFCs in terms of their asset size always come at the top tier, irrespective of any other factor.
The circular states that NBFC-UL and NBFC-ML will have to undertake a board-approved policy and a compliance function, including appointment of a CCO, based on the latest framework by April 1, 2023 and October 1, 2023.