{"id":30922,"date":"2021-05-22T14:27:01","date_gmt":"2021-05-22T08:57:01","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=30922"},"modified":"2025-01-14T18:42:44","modified_gmt":"2025-01-14T13:12:44","slug":"rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/","title":{"rendered":"RBI to limit funding in NBFCs from Non-compliant Financial Action Task Force Nations"},"content":{"rendered":"\n<p class=\"has-drop-cap\">To curb money laundering in India, Reserve Bank vide its Notification released on February 12, 2021, clarifies that new investors from or via non-compliant Financial Action Task Force jurisdictions cannot directly or indirectly acquire considerable influence in India-based NBFCs. <\/p>\n\n\n\n<p>This implies that new investor from said jurisdictions in total should hold less than 20% of the voting power of the <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC<\/strong><\/a>. The Notification shall be applicable on new investment in prevailing NBFCs and entities seeking registration certificate from the Reserve Bank of India.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/#What_is_Financial_Action_Task_Force_and_its_objective\" >What is Financial Action Task Force and its objective?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/#Underlining_Essential_Declarations_of_the_Released_RBIs_Notification\" >Underlining Essential Declarations of the Released RBI&#8217;s Notification<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/#Does_the_Aforesaid_Notification_Revolve_Around_Retrospective_Effect\" >Does the Aforesaid Notification Revolve Around Retrospective Effect?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/#Past_RBIs_Actions_to_Contain_Risk_Associated_with_Money_Laundering_and_Terrorist_Financing\" >Past RBI&#8217;s Actions to Contain Risk Associated with Money Laundering and Terrorist Financing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/#An_overview_on_Decisions_made_by_RBI_for_NBFCs_in_the_year_2021\" >An overview on Decisions made by RBI for NBFCs in the year 2021<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/#Discussion_Paper_Manifesting_NBFCs_Revised_Regulatory_Framework_Released_on_January_22_2021\" >Discussion Paper Manifesting NBFCs&#8217; Revised Regulatory Framework Released on January 22, 2021:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Financial_Action_Task_Force_and_its_objective\"><\/span>What is Financial Action Task Force and its objective? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Financial Action Task Force (aka FATF) is an\ninter-governmental institution founded in 1989 by its Member jurisdictions. The\nobjectives of this institution are to establish standards &amp; advocate the\neffective implementation of operational and regulatory measures for the\nprevention of terrorist financing and money laundering, and other threats that\nare detrimental to the international financial system.<\/p>\n\n\n\n<p>The FATF oversees the growth of its members in\ndeploying fundamental measures, review&nbsp;terrorist financing &amp; money\nlaundering techniques and counter-measures, and advocates the adoption of apt\nstandards globally.&nbsp;<\/p>\n\n\n\n<p><strong><em>On a whole, the Financial Action Task Forceseeks;<\/em><\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/On-a-whole-the-Financial-Action-Task-Forceseeks.png\" alt=\"Financial Action Task Forceseeks\" class=\"wp-image-30963\" width=\"519\" height=\"519\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/On-a-whole-the-Financial-Action-Task-Forceseeks.png 997w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/On-a-whole-the-Financial-Action-Task-Forceseeks-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/On-a-whole-the-Financial-Action-Task-Forceseeks-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/On-a-whole-the-Financial-Action-Task-Forceseeks-768x768.png 768w\" sizes=\"(max-width: 519px) 100vw, 519px\" \/><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Underlining_Essential_Declarations_of_the_Released_RBIs_Notification\"><\/span>Underlining Essential Declarations of the Released RBI&#8217;s Notification<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The institution periodically pinpoints\njurisdictions lacking adequate measures to combat such practices in following\npublications<\/p>\n\n\n\n<ul>\n<li>High-Risk\nJurisdictions open to Call for Action, and<\/li>\n\n\n\n<li>Jurisdictions\nunder enhanced monitoring.<\/li>\n<\/ul>\n\n\n\n<p>Under the Notification, nations included in either category will be classified as non-compliant FATF countries. Among the FATF high-risk list nations are Iran &amp; the Democratic People&#8217;s Republic of Korea. Among those classified under enhanced monitoring are Pakistan, Zimbabwe, Cambodia, Mauritius, Panama, Jamaica, Ghana and others.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important\"><a href=\"https:\/\/corpbiz.io\/learning\/underlining-importance-of-budget-2021-for-nbfcs-and-bank\/\">Underlining Importance of Budget 2021 for NBFCs and Banks <\/a><\/mark><\/p>\n\n\n\n<p>Under the influence of increased monitoring,\njurisdictions are proactively engaged with the FAFT to address strategic\nloopholes in their regimes to mitigate proliferation financing and money\nlaundering.<\/p>\n\n\n\n<p>When the Financial Action Task Forcespecifies a\njurisdiction under increased monitoring, it indicates the nation has committed\nto fixing the identified risks with an agreed timeline and is subject to\nincreased monitoring. This list is referred to as the &#8220;Grey\nList&#8221;.&nbsp;<\/p>\n\n\n\n<ul>\n<li>Barbados<\/li>\n\n\n\n<li>Burkina Faso<\/li>\n\n\n\n<li>Cambodia<\/li>\n\n\n\n<li>Botswana<\/li>\n\n\n\n<li>Cayman Islands<\/li>\n\n\n\n<li>Jamaica<\/li>\n\n\n\n<li>Mauritius<\/li>\n\n\n\n<li>Ghana<\/li>\n\n\n\n<li>Morocco<\/li>\n\n\n\n<li>Myanmar<\/li>\n\n\n\n<li>Pakistan<\/li>\n\n\n\n<li>Panama<\/li>\n\n\n\n<li>Nicaragua<\/li>\n\n\n\n<li>Senegal<\/li>\n\n\n\n<li>Syria<\/li>\n\n\n\n<li>Yemen.<\/li>\n\n\n\n<li>Zimbabwe<\/li>\n\n\n\n<li>Uganda<\/li>\n<\/ul>\n\n\n\n<p>High-risk jurisdictions are plagued with\nstrategic deficiencies in their regime to combat terrorist financing, money\nlaundering, &amp; proliferation financing. Financial Action Task Forceurges the\nhigh-risk nations to apply improved due diligence to protect the global\nfinancial system against the risks above emanating from the country. This list\nis referred to as the &#8220;black list.&#8221;<\/p>\n\n\n\n<p>As mentioned above, the blacklist contains two nations:\nthe Democratic People&#8217;s Republic of Korea (DPRK) and Iran.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Does_the_Aforesaid_Notification_Revolve_Around_Retrospective_Effect\"><\/span>Does the Aforesaid Notification Revolve Around Retrospective Effect?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per the Notification, <em><strong>RBI<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Reserve_Bank_of_India\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> aiming to take new investors into account who belong to non-compliant FAFT jurisdictions. That means prior investments will remain unaffected by this declaration. <\/p>\n\n\n\n<p>Investors in prevailing NBFCs from the\nnon-compliant FATF jurisdiction need not worry about their investment. Such\ninvestors can bring additional investments as per prevailing regulation to\nsupport business continuity in the country.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Past_RBIs_Actions_to_Contain_Risk_Associated_with_Money_Laundering_and_Terrorist_Financing\"><\/span>Past RBI&#8217;s Actions to Contain Risk Associated with Money Laundering and Terrorist Financing<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In 2020, Reserve Bank demanded financial\ninstitutions, including shadow banks, to carry out terrorist financing &amp;\nmoney laundering risk assessment periodically as per the new section in the master\ndirections related to KYC. The assessment was expected to mitigate terrorist\nfinancing &amp; money laundering risks for clients, nations, products,\ntransactions etc.<\/p>\n\n\n\n<p>RBI also compelled regulated entities, i.e. REs,\nto hone their understanding of the sector-specific vulnerabilities via provided\nmaterial from the regulators.&nbsp;Further, the institution directs the REs to\ntake size, the complexity of activities, and geographical presence into account\nduring risk assessment. It would give them more clarity and prompt outcome.<\/p>\n\n\n\n<p>RBI&#8217;s circular covers all Financial\nInstitutions, shadow banks, and payment system providers.&nbsp;The circular\nfurther emphasized REs to apply a Risk-Based Approach (RBA) for prevention\n&amp; management of the identified risks. They were also required to set up\nboard-approved policies and procedure in this context.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"An_overview_on_Decisions_made_by_RBI_for_NBFCs_in_the_year_2021\"><\/span>An overview on Decisions made by RBI for NBFCs in the year 2021<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The NBFC sector has seen Reserve bank&#8217;s special\nattention since the onset of the year 2021; wherein RBI has undertaken\nimportant measure regarding the NBFCs such as:&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Statement on Regulatory Policies &amp; Developmental released on December 4, 2020<\/h3>\n\n\n\n<p>RBI, vide this statement @ https:\/\/www.rbi.org.in\/Scripts\/BS_PressReleaseDisplay.aspx?prid=50748 &nbsp;specifies the need for supervision &amp; regulation over NBFCs. The statement addresses:<\/p>\n\n\n\n<ul>\n<li>To\nneed to outline norms for dividend distribution by NBFCs;<\/li>\n\n\n\n<li>Review\nof NBFCs&#8217;regulatory framework in line with the fluctuating risk profiles of\nNBFCs via a scale based regulatory approach associated with the systematic risk\ncontribution of NBFCs; and<\/li>\n\n\n\n<li>Strengthening\nthe NBFCs&#8217; audit infrastructure and harmonizing norms related to statutory\nauditors&#8217; appointment for shadow banks, commercial banks, and cooperative\nbanks.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Discussion_Paper_Manifesting_NBFCs_Revised_Regulatory_Framework_Released_on_January_22_2021\"><\/span>Discussion Paper Manifesting NBFCs&#8217; Revised Regulatory Framework Released on January 22, 2021:<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>RBI has proposed the strategic bucketing of\nNBFCs where the regulatory regime will be less complex and more precise. The\ndiscussion paper envisages the categorization of NBFCs into four necessary\nlayers, viz base layer, top layer, medium layer, etc. Additionally, the paper\nprovides&nbsp;a methodology for identifying NBFCs, regulatory framework, and\nstructure for NBFCs at different layers.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This Notification will considerably impact\npotential investments in NBFCs from funds registered in non-compliant FATF\njurisdictions. Funds or firms registered in such jurisdictions planning to\ninvest in India&#8217;s shadow banks are now compelled to revise their investment\nstrategies to ensure conformity with the permissible threshold as provided in\nthe Notification.&nbsp;<\/p>\n\n\n\n<p>Digitization has also played a vital role in garnering illicit cross-border transaction. It isn&#8217;t easy is trace than the conventional money transaction. RBI is also aiming to set up strict measures for electronic transfer in future.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important\"><a href=\"https:\/\/corpbiz.io\/learning\/fintech-startups-aiming-for-nbfc-license-despite-several-challenges\/\">Fintech Startups Aiming for NBFC License Despite Several Challenges <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>To curb money laundering in India, Reserve Bank vide its Notification released on February 12, 2021, clarifies that new investors from or via non-compliant Financial Action Task Force jurisdictions cannot directly or indirectly acquire considerable influence in India-based NBFCs. This implies that new investor from said jurisdictions in total should hold less than 20% of [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":30965,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128],"tags":[1765],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":3230,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30922"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=30922"}],"version-history":[{"count":30,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30922\/revisions"}],"predecessor-version":[{"id":68316,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30922\/revisions\/68316"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/30965"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=30922"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=30922"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=30922"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}