Because of the overlapping of regulation of schemes, fraudulent entities have duped people of thousands of crores in the last few decades
To plug regulatory loopholes and save gullible people from getting duped in Ponzi schemes, the government should enact a comprehensive model central law to regulate collective investment schemes, chit funds and such other activities which are presently defined and regulated in a dispersed manner, said the Parliamentary Standing Committee on Finance.
As various money collection/investment schemes operate in different forms and names across the country, the parliamentary panel said this law should also contain a separate list of on non-permissible schemes as well, clearly spelling out the nature of such prohibited activities with its penal consequences.
“The chief reason for failure of the Prize Chits and Money Circulation (Banning) Act has been found to be its broad and open-ended definition of ‘money circulation’, which has left scope for large-scale circumventing by unscrupulous operators,” the panel observed in a report tabled in Parliament.
Such a law should also have provisions such as attachment of property, recovery and distribution of proceeds in a stipulated timeframe, deterrent penalties with imprisonment, time-bound repayments/compensation and provision for class action suits/litigation, it said.
Because of the overlapping of regulation of such schemes, fraudulent entities have duped people of thousands of crores of rupees in the last few decades. For instance, NBFCs are regulated by the RBI; chit funds and money circulation including multilevel marketing schemes are under the domain of State government; collective investment schemes come under the purview of Sebi; schemes offered by cooperative societies are under state governments; multi-state cooperative societies come under the central registrar, ministry of agriculture; and deposits taken by non-NBFCs are regulated by the ministry of corporate affairs under the Companies Act.