On April 11, 2022, the Reserve Bank of India (RBI) mandates all Non Banking Financial Companies in the Upper Layer (NBFC-UL) and Middle Layer (NBFC-ML) to have independent Compliance Function by April 1, 2023, and to appoint of Chief Compliance Officer (CCO) by October 1, 2023.
- NBFC-ML consists of all deposit-taking NBFCs irrespective of asset size; NBFCs with asset size of Rs 1,000 crore and above; and NBFCs undertaking certain types of activities.
- NBFC-UL comprises those NBFCs which are specifically identified by RBI as warranting enhanced regulatory requirements. The top ten eligible NBFCs in terms of their asset size will always fall in the upper layer, irrespective of any other factor.
About CCO:
i.CCO will act as a nodal point of contact between the NBFC and the regulators/supervisors and must participate in the discussions held with RBI.
ii.There will not be any ‘dual hatting’ means CCO will not be given any responsibility which brings elements of conflict of interest.
iii.A prior intimation to the Senior Supervisory Manager, Department of Supervision, RBI, should be provided before appointment, premature transfer, resignation, early retirement or removal of the CCO.
iv.Appointment of COO: There should be a well-defined selection process for the appointment CCO will be made. The final decision on the appointment will be made by the board or board committee for the purpose. Also, the CCO should be a senior executive of the NBFC with a position not below two levels from the CEO.
- COO will be appointed for a minimum fixed tenure of not less than 3 years. In exceptional cases, the authority may relax the minimum tenure by one year.
About Compliance Function:
i.Compliance Function is a part of the Corporate Governance along with the internal control and compliance risk management processes. Therefore, certain principles, standards and procedures for Compliance Function in NBFC-UL and NBFC-ML have been introduced.
- Compliance risk of NBFC is the risk of legal sanctions, financial loss or loss of reputation, resulting, its failure to comply with regulations.
ii.The NBFCs in UL and ML will frame their guidelines; and lay down a board-approved compliance policy as per the RBI’s circular by taking into account their corporate governance framework, risk profile and organizational structure, etc.
iii.Compliance function will ensure strict observance of all statutory and regulatory requirements for the NBFCs, including standards of market conduct, managing conflict of interest, and treating customers fairly.
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About Reserve Bank of India (RBI):
Establishment– April 1, 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar
