Inquisitive Mind

Securities and Exchange Board of India (SEBI) had revised the guidelines on nomination for demat accounts and mutual fund folios.   Which entities are covered by the guidelines? The following regulated entities (REs) are covered by the guidelines – Asset Management Companies (AMCs) of Mutual Funds (MFs) and their Registrars to an issue and share Transfer Agents (RTAs)  Association of Mutual Funds in India (AMFI)  Recognized Depositories  Registered Depository Participants (DPs) What are the guidelines on nomination facility? Nomination shall be mandatory for single holding and optional for jointly held accounts / folios. However, an investor having single holding / account / folio can opt-out of nomination, either online or through physical / offline mode. In case a joint account / folio becomes single holding, post the demise of holders, either nomination or ‘opt-out’, is mandatory. Investors shall have the option to specify guardians when nominees are minors....

Reserve Bank of India (RBI) has issued directions on nomination facility in deposit accounts, safe deposit lockers and articles kept in safe custody with the banks. What is the legal framework for nomination facility in banks? Banking Regulation Act, 1949 (BR Act) contain provisions on nomination facility in banks. Section 45ZA – Nomination for payment of depositors' money  Where a deposit is held by a banking company to the credit of one or more persons, the depositor / all the depositors together, may nominate one person to whom in the event of his / their death, the amount of deposit may be returned by the banking company. Where the nominee is a minor, the depositor shall appoint any person to receive the amount of deposit in the event of his death during the minority of the nominee. Section 45ZC – Nomination for return of articles kept in safe custody with banking company  Where any person leaves any article in safe custody with a banking company, such person may nominate ...

Reserve Bank of India (RBI) has amended various forex guidelines. This article lists out some of the such recent amendments. What are the updates in the existing guidelines? Previous guidelines Revised guidelines Persons resident outside India that maintain a rupee account in terms of regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016 may purchase or sell dated Government Securities / treasury bills. The amount of consideration paid for the purchases shall be out of the funds held in the said rupee account. Persons resident outside India that maintain a rupee account in terms of regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016 may purchase or sell dated Government Securities / treasury bills and non-convertible debentures / bonds and commercial papers issued by an Indian company. The amount of consideration paid for the purchases shall be out of the funds held in the said rupee account. The balance...

Reserve Bank of India (RBI) has signed its renewed Statement of Commitment (SoC) to the FX Global Code.  What is FX Global Code? FX Global Code is a set of global principles of good practice in the foreign exchange market. The Code contains 55 principles that provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. The principles cover ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement. The establishment of the Code was facilitated by the Foreign Exchange Working Group (FXWG), which operated under the auspices of the BIS Markets Committee.  The Code was developed by a partnership between central banks and market participants from around the globe and was first published in 2017. The Code promotes a robust, fair, liquid, open, and appropriately transparent market in which a diverse set of market participants, supported by resilient infras...

Reserve Bank of India (RBI) has issued directions on investments in non-SLR instruments by State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). What is the prudential limit for non-SLR investment by StCBs and CCBs? Total Non-SLR investments shall not exceed 10% of the total deposits of a bank as on March 31 of the preceding financial year. Which instruments are permitted for non-SLR investments by StCBs and CCBs? StCBs / CCBs may invest in the following instruments – "A" or equivalent and higher rated Commercial Papers (CPs), debentures and bonds. Units of Debt Mutual Funds and Money Market Mutual Funds. Shares of Market Infrastructure Companies (MICs), e.g. Clearing Corporation of India Ltd. (CCIL), National Payments Corporation of India (NPCI), Society for World-wide Inter-bank Financial Telecommunication (SWIFT). Share capital of Shared Service Entity (SSE) set up by National Bank for Agriculture and Rural Development (NABARD) for StCBs and CCBs. Which a...

Reserve Bank of India (RBI) has issued directions on authentication mechanisms for digital payment transactions. What is the rationale behind the directions? All digital payment transactions in India are required to meet the norm of two factors of authentication. While no specific factor was mandated for authentication, the digital payments ecosystem has primarily adopted SMS-based One Time Password (OTP) as the additional factor. To enable the payments ecosystem to leverage the technological advancements for implementing alternative authentication mechanisms, RBI has issued the directions on authentication mechanisms for digital payment transactions. What is Authentication? Authentication is a process of validating and confirming the credentials of the customer who is originating the payment instruction. What is Factor of Authentication? Factor of Authentication is the credential of the customer which is used for authentication. The factors of authentication can be from “something the...

Reserve Bank of India (RBI) has issued directions on regulation of Payment Aggregators (PAs). Who is Payment Aggregator (PA)? Payment Aggregator (PA) is an entity that facilitates aggregation of payments made by customers to the merchants through one or more payment channels through the merchant’s interface (physical / virtual) for purchase of goods, services or investment products, and subsequently settles the collected funds to such merchants.  What are the categories of PA? PA – Physical (PA-P) – PA that facilitates transactions where both the acceptance device and payment instrument are physically present in close proximity while making the transaction. PA – Cross Border (PA-CB) – PA that facilitates aggregation of cross-border payments for current account transactions, that are not prohibited under Foreign Exchange Management Act, 1999 (FEMA), for its onboarded merchants through e-commerce mode. The 2 sub-categories of PA-CB are – PA-CB facilitating inward transaction (i.e. tr...

Reserve Bank of India (RBI) has released the report of the committee to develop a framework for responsible and ethical enablement of artificial intelligence (FREE-AI) in the financial sector. Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector In the financial sector, Artificial Intelligence (AI) has the potential to unlock new forms of customer engagement, enable alternate approaches to credit assessment, risk monitoring, fraud detection, and offer new supervisory tools. At the same time, increased adoption of AI could lead to new risks like bias and lack of explainability, as well as amplifying existing challenges to data protection, cybersecurity, among others. To encourage the responsible and ethical adoption of AI in the financial sector, the committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector (Chairperson: Dr. Pushpak B...