The RBI has decided to implement certain principles, standards, and procedures for the compliance function in NBFC-UL (Upper Layer) and NBFC-ML (Middle Layer), while keeping proportionality in view. Based on the framework available on the RBI website, NBFC-UL and NBFC-ML must implement a board-approved policy and a compliance function, including the appointment of a chief compliance officer (CCO), by April 1, 2023, and October 1, 2023, respectively.
Compliance Function shall ensure strict observance of all statutory and regulatory requirements for the NBFC, including standards of market conduct, managing conflict of interest, treating customers fairly and ensuring the suitability of customer service.
The board/board committee should ensure that an appropriate compliance policy is put in place and implemented. The senior management should carry out an exercise, at least once a year, to identify and assess the major compliance risk facing the NBFC and formulate plans to manage it; submit to the board/board committee a review at the prescribed periodicity and a detailed annual review of compliance; and report promptly to the board/board committee on any material compliance failure while ensuring that appropriate remedial or disciplinary action is taken.
The CCO should be a member of the ‘new product’ committee/s. All new products should be subjected to intensive monitoring for at least the first six months of introduction to ensure that the indicative parameters of compliance risk are adequately monitored.
The RBI will continue to expect an effective compliance program where all Risk Mitigation Plan (RMP)/Monitorable Action Plan (MAP) points are complied with within the timelines prescribed. Unsatisfactory compliance with RMP/MAP may invite penal action from RBI. The CCO will be the nodal point of contact between the NBFC and the regulators / supervisors and will necessarily be a participant in the structured or other regular discussions held with RBI.
