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  1. ‘Banks must monitor account transactions to track ponzi scams’

‘Banks must monitor account transactions to track ponzi scams’

With growing incidents of ponzi schemes defrauding millions of investors, the Reserve Bank of India on Monday blamed regulatory vacuum...

By: | Mumbai | Published: June 9, 2015 12:15 AM

With growing incidents of ponzi schemes defrauding millions of investors, the Reserve Bank of India on Monday blamed regulatory vacuum and lack of coordination among various watchdog and investigative agencies.

Asking banks to extend know-your-customer (KYC) process beyond collecting customer information, RBI deputy governor SS Mundra said that lenders must constantly monitor transactions of account holders as some of the funds of ponzi schemes might be funnelled through bank accounts.

“Ultimately, this kind of money flows through the banking system, it goes to some account. If it goes to account, are there enough checks and balances?” said Mundra. He added that an account could be a proper KYC compliant one at the time of opening, but a check at this point is not enough. Banks will have to keep a tab on transactions happening in it.

Mundra said ponzi schemes flourish due to lack of co-ordination  between various enforcement agencies that create a regulatory vaccum.

“It is essential that agencies follow a coordinated efforts to get to the bottom of the problem and punish the accused,” he said at a workshop on ponzi schemes, on Monday.

Ponzi schemes derive their name from Charles Ponzi, who in early 1920s duped thousands of investors by promising massive returns on securities known as international reply coupons which could be bought in one country and exchanged cross border.

Such schemes have been unearthed quite often with the latest one being that of Bernard Madoff who duped investors by promising them big returns from the stock market.

The parallels of such ponzi schemes in India have been chit funds, the latest being Saradha Chit fund. Run by the Saradha Group which consisted of nearly 200 private companies, the fund garnered around R30,000 crore through more than 20 lakh depositors before it collapsed in 2013.

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