Number of non-compliant NBFCs sees big fall: Data

Published: May 16, 2019 2:03:43 AM

The Financial Intelligence Unit (FIU) under the finance ministry has issued a list of 2,337 non-compliant non-banking finance companies (NBFCs) for the cut-off period of March 31, 2019, the number being substantially lower compared with the first list released last year.

The finance ministry in March 2018 had asked non-compliant NBFCs which did not fulfill their obligations under PML rules to do so and register with the FINnet portal of FIU-IND.The finance ministry in March 2018 had asked non-compliant NBFCs which did not fulfill their obligations under PML rules to do so and register with the FINnet portal of FIU-IND.

By Sanjeev Sharma

The Financial Intelligence Unit (FIU) under the finance ministry has issued a list of 2,337 non-compliant non-banking finance companies (NBFCs) for the cut-off period of March 31, 2019, the number being substantially lower compared with the first list released last year.

According to FIU, these 2,337 companies have not fulfilled their obligations under the Prevention of Money Laundering Act (PMLA) and PML Rules related to registration of principal officer (PO) with the portal of FIU.

It might be recalled that the FIU had compiled a list of 9,491 NBFCs in 2018 which were categorised as ‘high risk financial institutions’ as on January 31, 2018 on account of non-compliance with the PMLA.

The finance ministry in March 2018 had asked non-compliant NBFCs which did not fulfill their obligations under PML rules to do so and register with the FINnet portal of FIU-IND.

In a statement, the finance ministry had said these unregistered NBFCs remain outside the reporting ambit of FIU-IND, they pose a risk to the integrity of the country’s financial system and therefore, FIU-IND has published the list of such ‘non-compliant NBFCs which have not fulfilled their obligation under PMLA and rules related to non registration of Principal Officer’.

It said the list was published by FIU-IND so as to enable bankers to conduct enhanced due diligence of transactions carried out by such NBFCs.

The government had said that FIU-IND would delete the names of NBFCs once their registration process is completed, and the list would be revised monthly.

Experts say that most of the mainstream NBFCs have complied with the FIU requirements. Anita Baid, senior manager, Vinod Kothari Consultants, said as regards the non-compliant status, most of the NBFCs that matter had subsequently taken steps to appoint designated director as required by the PMLA.

Baid said India has a large number of NBFCs which are essentially holding shares in closely-held companies, and are regarded as ‘NBFCs’ merely because of the definition in the RBI Act being such. These companies hardly have any substantive interface with the financial markets, she added.

Baid said the first list recognised the NBFCs as ‘High Risk Financial Institutions’ and was a warning given by the FIU-IND to comply with the requirements under the PMLA Act and rules thereunder. However, the recent notification has categorised those NBFCs as ‘non compliant’ which have not fulfilled their obligations under PMLA and PML rules related to registration of PO, she added.

Experts say the first list issued by FIU contained many names for technical lapses. “The list of 9,491 NBFCs (out of around 10,000 NBFCs operating in India) that was notified by FIU-IND, to the extent we are aware of, included several names who were treated as non-compliant for purely technical lapses, such as non registration of PO”, Baid said.

Principal officer is an officer designated by a reporting entity for the purpose of Section 12 of PMLA, 2002. The Rule 7 requires every reporting entity, including NBFCs, to communicate the name, designation and address of the principal officer to FIU-IND.

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