IL&FS crisis aftermath: Government plans mega data platform to flag frauds

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New Delhi | Published: October 29, 2018 5:15:30 AM

Critical financial databases, including those of MCA21, GSTN, CBDT and FIU, proposed to be linked.

A series of scandals in recent months, especially in the banking system, has prompted the government to scour for long-term institutional solutions instead of quick-fixes for early detection of frauds. (Representational photo)

Stung by the unexpected flare-up of a crisis at Infrastructure Leasing & Financial Services (IL&FS), the government is considering linking critical economic databases to create a mega platform for financial sector regulators as well as investigating agencies to better equip them to ring alarm bells on frauds on time and respond swiftly.

An official source told FE that the ministry of corporate (MCA) affairs is working on a proposal to bolster an institutional framework by linking critical data bases, including those of MCA21, Goods and Services Tax Network (GSTN), the Central Board of Direct Taxes (CBDT), the Financial Intelligence Unit (FIU) and the Central Economic Intelligence Bureau (CEIB). MCA21 alone contains exhaustive details of the filings of over 5.5 lakh active companies.

“Currently, several agencies and regulators are working in silos and confined to their narrow world of functioning, which has created the scope for fraud alerts to go unnoticed at times because they are not able to join the dots.

“But once they together have access to multiple sets of data, covering a vast spectrum of financial activity or transactions, on a single platform and work in a structured manner, even if one agency misses a particular suspected activity, the other will not,” a senior government official told FE, explaining the rationale behind the latest plan.

The move comes after a default crisis at IL&FS, which was assumed to be a great infrastructure refinancier with robust financials and good ratings until only a few months ago, surfaced out of the blue and threatened to spill over to the broader financial system.

A series of scandals in recent months, especially in the banking system, has prompted the government to scour for long-term institutional solutions instead of quick-fixes for early detection of frauds. In some cases, such as the $2.2-billion fraud at Punjab National Bank involving jewellers Nirav Modi and Mehul Choksi, the scandal came to light only after the accused had fled the country.

While companies and banks have been directed by both the government and the regulators to keep strengthening their internal systems, the latest move will serve to enhance the ability of external agencies and watchdogs to detect frauds early and strike even if the internal checks and balances of the entities concerned collapse.

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