{"id":6169,"date":"2021-06-16T06:15:13","date_gmt":"2021-06-16T06:15:13","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=6169"},"modified":"2021-06-16T06:18:35","modified_gmt":"2021-06-16T06:18:35","slug":"rbi-strengthens-investment-regulations-in-nbfc-from-fatf-non-compliant-jurisdictions","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/rbi-strengthens-investment-regulations-in-nbfc-from-fatf-non-compliant-jurisdictions\/","title":{"rendered":"RBI Strengthens Investment Regulations in NBFC from FATF Non-compliant Jurisdictions"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Currently,\nthe RBI (Reserve Bank of India) issues a notification to impose restrictions on\ninvestments in NBFCs (Non-Banking Financial Companies) by investors from the\nFATF non-compliant jurisdictions. Such restrictions were already applicable\nfrom the 12<sup>th<\/sup> of Feb 2021. In this blog, we will be talking about\nthe details of the notification released by the Reserve Bank of India to Strengthens\nInvestment Regulations in NBFC from FATF Non-compliant Jurisdictions.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3c44ec5f94b\" class=\"ez-toc-cssicon-toggle-label\"><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><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3c44ec5f94b\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-strengthens-investment-regulations-in-nbfc-from-fatf-non-compliant-jurisdictions\/#Background_Matter_%E2%80%93_Investment_Regulations_in_NBFC_from_FATF_Non-compliant_Jurisdictions\" title=\"Background\nMatter &#8211; Investment Regulations in NBFC from FATF Non-compliant Jurisdictions\">Background\nMatter &#8211; Investment Regulations in NBFC from FATF Non-compliant Jurisdictions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-strengthens-investment-regulations-in-nbfc-from-fatf-non-compliant-jurisdictions\/#Meaning_of_Financial_Action_Task_Force\" title=\"Meaning\nof Financial Action Task Force\">Meaning\nof Financial Action Task Force<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-strengthens-investment-regulations-in-nbfc-from-fatf-non-compliant-jurisdictions\/#Notification_of_RBI_on_Investment_Regulation_in_NBFC_from_FATF_Non-Compliant_Jurisdictions\" title=\"Notification\nof RBI on Investment Regulation in NBFC from FATF Non-Compliant Jurisdictions\">Notification\nof RBI on Investment Regulation in NBFC from FATF Non-Compliant Jurisdictions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-strengthens-investment-regulations-in-nbfc-from-fatf-non-compliant-jurisdictions\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Background_Matter_%E2%80%93_Investment_Regulations_in_NBFC_from_FATF_Non-compliant_Jurisdictions\"><\/span>Background\nMatter &#8211; Investment Regulations in NBFC from FATF Non-compliant Jurisdictions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nrestrictions have come in the awaken of increased inspection of the Non-Banking\nFinancial Companies after the fall down of certain companies &amp; also to\nrestrict money laundering. The RBI had commenced investigating from Mauritius\nsince last year and returned numerous applications by different Non-Banking Financial\nCompanies because of their connection with Mauritius. This was because of the\nfact that Mauritius was punt under the grey list by the <strong><em>FATF (Financial Action Task\nForce) <\/em><\/strong>in the year 2020 due to certain organised deficiencies. Such\norganised deficiencies comprise lack of access to correct beneficial\nproprietorship information by the experienced authorities, lack of potential to\nprevent money laundering, and failure to conduct financial investigations.<\/p>\n\n\n\n<p>Such steps from the <strong>Reserve Bank of India<\/strong><sup><a href=\"https:\/\/www.rbi.org.in\/\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup> caused a lack of lucidity for the fund managers. They were confused regarding whether to consider Mauritius while setting fund structures and working with the present legacy structures. But, with the notification or circular from the RBI, the confusion has been put to rest.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Meaning_of_Financial_Action_Task_Force\"><\/span>Meaning\nof Financial Action Task Force<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>It\nis a worldwide watchdog organisation that looks to restrain money laundering\n&amp; terrorist financing. It was established in the year 1989, and today it is\nan intergovernmental organisation with thirty-nine members and affiliations\nfrom CFATF, APG, etc. The FATF (Financial Action Task Force) has developed the\nstandards or recommendations of FATF, which make sure a co-ordinated response\nglobally to prevent organised crimes &amp; terrorism. It has also been working\nto prevent funding for weapons of mass destruction.<\/p>\n\n\n\n<p>FATF\nfights terrorism financing &amp; money laundering, which regularly recognises\njurisdictions that have fragile measures to fight terrorist financing and money\nlaundering under two headers:<\/p>\n\n\n\n<ul><li>High-risk jurisdictions subject\nto a call for action, including of Democratic People&#8217;s Republic of Korea &amp;\nIran;<\/li><li>Jurisdiction under increased\nobserving, including of countries such as Myanmar, Jamaica, Ghana, Mauritius,\nand Cambodia.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Notification_of_RBI_on_Investment_Regulation_in_NBFC_from_FATF_Non-Compliant_Jurisdictions\"><\/span>Notification\nof RBI on Investment Regulation in NBFC from FATF Non-Compliant Jurisdictions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\ncircular\/notification of the Reserve Bank of India distinguishes the investment\nbased on the pre-existing and new investors and delivers various rules for both\nclasses, and the restrictions imposed via this notification or circular apply\nto the new investors only. <\/p>\n\n\n\n<p><strong>New Investors<\/strong><\/p>\n\n\n\n<p>New investors through or from the FATF non-compliant jurisdictions would be prohibited from indirectly or directly getting considerable influence in the present investee NBFC and companies looking for <a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\"><strong>NBFC Registration <\/strong><\/a>Certificate. The word significant impact is mentioned as having more than 20% of the actual as well as possible voting power. This prohibits new investors from the FATF non-compliant jurisdictions from getting beyond 20% of the voting rights in the Non-Banking Financial Companies.<\/p>\n\n\n\n<p>The\nReserve Bank of India circular requires considering the aggregate of actual\n&amp; possible voting power. The potential voting power comprises right on\naccount of instruments that are convertible to equity other tools with delegation\nvoting rights, etc.<\/p>\n\n\n\n<p><strong>Existing Investors<\/strong><\/p>\n\n\n\n<p>The\nrestrictions under the circular of the Reserve Bank of India pertaining to\nrestrictions on investments in NBFCs by investors from the FATF non-compliant\njurisdictions shall not apply to the existing investments in Non-Banking\nFinancial Companies from FATF non-compliant jurisdictions. They have also been\nallowed to obtain additional investment to support their continuity of business\nin India. But, it is worth mentioning here that such additional investment must\nbe as per the extant regulations.<\/p>\n\n\n\n<p>The\npermission for additional investment by existing investors looks to be not\naligned with the notification&#8217;s objective. The existing investors are permitted\nfreely to make an additional investment as per the extant regulation, and only\nfresh investors are subjected to a limitation of 20% of voting rights.<\/p>\n\n\n\n<p>The\nnotification may lead to practical problems in ensuring compliance by listed\nNon-Banking Financial Companies, and a particular mechanism could well be\nneeded to be developed to help the same. The listed Non-Banking Financial\nCompanies should be watchful of the investment by already registered Foreign\nPortfolio Investors (FPI) from jurisdictions that were categorised as FATF\nnon-compliant. Such Foreign Portfolio Investors (FPIs) could invest up to the\nsectoral limit of 100% in Non-Banking Financial Company, thereby breaching the\nlimit arranged under the circular\/notification.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In 2020, the Reserve Bank of India had returned a few applications from the private equity &amp; venture capital funds in Mauritius for Greenfield investments or acquisitions of NBFCs on account of its FATF compliance status. The circular\/notification of the Reserve Bank of India (restrictions on investments in NBFCs by investors from the FATF non-compliant jurisdictions) clarifies the position of law and sets out the limitations, allows non-controlling investments and exempts present investment, comprising extra investment in Non-Banking Financial Companies to support continuity of business in India. This clarity by the RBI concerning the restrictions is expected to benefit investors in structuring their entry in India, especially in the Financial Services Sector.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/fintech-startups-striving-to-get-nbfc-license-despite-numerous-challenges\/\">Fintech Startups Striving to Get NBFC License Despite Numerous Challenges\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Currently, the RBI (Reserve Bank of India) issues a notification to impose restrictions on investments in NBFCs (Non-Banking Financial Companies) by investors from the FATF non-compliant jurisdictions. Such restrictions were already applicable from the 12th of Feb 2021. In this blog, we will be talking about the details of the notification released by the Reserve [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":6172,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[702],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/6169"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=6169"}],"version-history":[{"count":8,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/6169\/revisions"}],"predecessor-version":[{"id":6178,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/6169\/revisions\/6178"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/6172"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=6169"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=6169"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=6169"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}