Non-banking finance companies in the upper layer and middle layer ought to put in place a board approved policy and compliance function including the appointment of a chief compliance officer latest by April 1, 2023 and October 1, 2023, respectively, reported Business Line.
This is in accordance with the RBI’s guidelines on Scale Based Regulations for NBFCs.
“As part of the overall structure for corporate governance, compliance function serves a critical role. Accordingly, it has been decided to introduce certain principles, standards and procedures for Compliance Function in NBFC-UL and NBFC-ML, keeping in view the principles of proportionality,” the RBI said in a circular.
Timely implementation
It has also said that the circular should be placed in the immediate next meeting of the board of directors for information and devising an implementation strategy, under the Board’s supervision, in a time-bound manner. wrote Business Line
“Compliance function shall ensure strict observance of all statutory and regulatory requirements for the NBFC, including standards of market conduct, managing conflict of interest, treating customers fairly and ensuring the suitability of customer service,” the RBI said, adding that the board or board committee should ensure that an appropriate compliance policy is put in place and implemented.
Further, the board or board committee should prescribe the periodicity for review of compliance risk.
The Chief Compliance Officer (CCO) would be the nodal point of contact between the NBFC and the regulators and supervisors and would be a participant in the structured or other regular discussions held with RBI, according to the circular. Further, compliance to RBI inspection reports would be communicated to RBI through the office of the compliance function.
NBFCs would be expected to carry out an annual compliance risk assessment to identify and assess major compliance risks faced by them and prepare a plan to manage the risks.
The annual review should cover aspects including compliance failures, if any, during the preceding year and consequential losses and regulatory action, listing of all major regulatory guidelines issued during the preceding year and steps taken to ensure compliance; compliance with fair practices codes and adherence to standards set by self-regulatory bodies and accounting standards; and progress in the rectification of significant deficiencies and implementation of recommendations pointed out in various audits and RBI inspection reports.
The RBI has further clarified that the CCO shall not be given any responsibility which brings elements of conflict of interest, especially any role relating to business.
The CCO should be appointed for at least three years and should be a be a senior executive of the NBFC with a position not below two levels from the CEO.
“Selection of the candidate for the post of the CCO shall be made based on a well-defined selection process and recommendations made by a committee constituted by the board or board committee for the purpose,” the RBI has said, adding that the board or board committee shall take final decision in the appointment of CCO.
Also, a prior intimation needs to be given to the RBI before appointment, premature transfer, resignation, early retirement or removal of the CCO, RBI circular says.