13
Financial RegTech Newsletter November 2019
Financial RegTech Newsletter
November 2019
Financial RegTech Newsletter - November 20192 PwC
Event coverage – PwC’s NBFC compliance event
Regulatory news
Other regulatory news
Global regulatory news
Contact us
The non-banking financial company (NBFC) sector has faced difficulties for more than a year now. The sector’s troubles started with the default of debt repayments by Infrastructure Leasing & Financial Services (IL&FS) in August 2018 and since then, there have been many instances of many NBFCs defaulting on their repayment commitments. Against the backdrop of this crisis, PwC India hosted an NBFC compliance event in its Mumbai office on Wednesday, 20 November 2019. Titled ‘Looking Beyond Compliance – Bridging the Trust Deficit’, the event was attended by over 25 participants from 15 NBFCs.
Sessions in the event covered the entire compliance lifecycle, starting from understanding the regulator’s expectations, to building effective process governance, ensuring quality compliance through effective system strategy and driving data privacy through effective data governance.
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 20193 PwC
Event coverage – PwC’s NBFC compliance event
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Introduction and keynote addressVivek Belgavi, Partner, Financial Services Technology, and India FinTech Leader, PwC India, summarised the crisis faced by the NBFC sector in his introductory address and set the context for the rest of the event.
S Bhaskar, Chief Internal Auditor, Tata Capital, was the keynote speaker at the event. In his keynote address, Mr Bhaskar highlighted the following drivers of the crisis:
• asset-liability mismatch resulting from short-term market borrowings and long-term loan
• absence of robust process controls and due diligence mechanisms to match aggressive credit build-up
• low corporate governance and risk management standards resulting in slip-ups such as intra-group lending
• slowdown in economy resulting in decrease in consumption and demand for credit.
He then spoke about the ramifications of the current crisis, namely liquidity crunch in the NBFC sector, high borrowing costs and asset quality deterioration. As an internal auditor, he stressed the importance of all the stakeholders, be it employees, regulators, the board or auditors, taking up collective responsibility for effective corporate governance, as this goes hand-in-hand with effective process governance and data governance. He suggested practising greater transparency within organisations, comprehensive documentation of policies with clear ownership matrix, and use of technology to drive analytics and automation to identify and mitigate potential risks.
The keynote address was followed by a holistic coverage of PwC’s approach to improve compliance effectiveness.
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 20194 PwC
Event coverage – PwC’s NBFC compliance event
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Understanding regulator’s expectationAmit Jain and Pranali Mestha, part of Tax and Regulatory Services, PwC India, then spoke about key regulations in the NBFC sector. They discussed the challenge of misinterpretation of the regulators’ ask. As a solution, they presented a compliance register, a document that can help organisations to centrally establish definitions of all data elements that form regulatory returns. A compliance register is a matrix containing definitions of key terminologies in regulatory reports, sections of reports they are applicable to and relevant regulatory references. It serves as a common ready reference for all stakeholders to align with the final ask and avoid inconsistent and/or incorrect interpretations.
Event coverage – PwC’s NBFC compliance event
Effective process governanceVivek Iyer, Partner, Financial Services – Risk Assurance Services, PwC India, spoke about how robust finance and accounting processes can help organisations build trustworthy data. He started by speaking about the key risks that NBFCs face throughout their value chain. He discussed that asset quality, liquidity reporting, anti-money laundering (AML) checks and data integrity between front office and general ledger (GL) systems will be key thematic risks which will be the focus of regulatory reviews.
To build effective and strong process control frameworks, he suggested that organisations should move in a phased manner from operational transformation, which includes building standard operating procedures (SOPs), audit checklists, compliance registers, risk control matrices and key risk indicators, and working towards people and culture transformation by educating people about effective risks through training, workshops and e-learns. He also listed indicative key performance indicators (KPIs) for measuring the compliance culture of an organisation.
Financial RegTech Newsletter - November 20195 PwC
Event coverage – PwC’s NBFC compliance event
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Effective system strategyAsim Parashar, Partner, Financial Services Technology, PwC India, spoke about the effective system strategy to ensure quality compliance. He started with the systems involved in a lending lifecycle and pointed at the typical challenges faced at each step of the lifecycle. Some of the discussed challenges were the lack of accountability due to absence of or poorly documented SOPs, high degree of manual intervention in the Loan Origination System (LOS), inability to incorporate all business scenarios in the Loan Management System (LMS) and poor GL controls that result in reconciliation breaks. The cascading effect of all these is incomplete and inaccurate data being sourced in the data warehouse and when this data is used for regulatory reporting, it results in inconsistencies.
To overcome these challenges, Mr Parashar proposed steps such as:
• the alignment of technology vision with business strategy
• business process automation (BPA) with streamlined and robust workflows for traceability and accountability
• replacement/enhancement of core and support systems with the integrated new-age system landscape
• leveraging data to target low-risk customer segments and improve risk assessment and mitigation.
PwC’s Compliance SolutionHetal Shah and Hardik Gandhi, part of the Financial Services Data and Analytics team, PwC India, spoke about the evolution of the Reserve Bank of India’s (RBI) regulations on banks and NBFCs. Over the years, RBI has stressed the importance of system-driven regulatory submissions. In 2010, RBI released an approach paper on automated data flow (ADF), in which it instructed banks to submit regulatory data directly from its systems. Following the same ideology, as part of the upcoming Centralised Information and Management Systems (CIMS) programme, RBI is planning to collect data seamlessly from banks by creating a system-to-system interface.
The RBI also issued similar directives to NBFCs, in accordance with banks. In 2017, RBI directed all NBFCs to have their regulatory submissions system driven and to maintain seamless integration between management information systems (MIS) and reporting systems.
Financial RegTech Newsletter - November 20196 PwC
Event coverage – PwC’s NBFC compliance event
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Both the speakers touched upon some of the current challenges faced by the NBFC sector, such as:
• manual intervention leading to poor overall auditability
• ad hoc adjustments to reconcile data across front office and back office systems that lead to poor traceability
• dependency on multiple stakeholders leading to inadvertent delays.
In order to meet the RBI’s expectation of system-driven, consistent and accurate reporting, they demonstrated features of PwC’s Compliance Solution. The solution provides a host of features such as:
• pre-built regulatory, MIS reports and dashboards • action-oriented dashboard for monitoring
compliances • ability to generate reports for any period • pre-built validations to ensure data accuracy • maker-checker workflow • audit trail of all actions undertaken by users • email alerts for key events.
The demonstration of the solution was followed by a Q&A session.
Data privacy and enterprise data governanceThe event concluded with a session on data privacy and enterprise data governance, featuring Mukesh Deshpande, Data Management Leader and Partner, Technology Consulting, PwC India, and Amit Lundia, Data Governance Leader and Director, Data Management, PwC India. They started their session with a brief on the Draft Personal Data Protection Bill, 2018, introduced by the Government of India (GoI), which was sent for further scrutiny to the Justice BN Srikrishna Committee. They spoke about how the bill attempts to strengthen and unify the data protection framework within India, for its citizens. Key areas covered were consent management, data localisation and cross-border transfer, and breach and incident response. They also discussed the key privacy questions which needed to be addressed as part of data lifecycle governance. The session ended with impetus on the need of organisations to build an enterprise data governance capability to address wholesome compliance and drive business growth.
Vishal Motwani, Regulatory Data Leader, Financial Services Data and Analytics, PwC India, who anchored the event, thanked all the participants for their participation. For complimentary copies of all the material presented at the event, please write to [email protected].
7 PwC
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 2019
Regulatory news
Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM)The RBI has issued a Master Circular with the updates related to the instructions on DAY-NRLM. There are certain guidelines prescribed by the Ministry of Rural Development (MoRD), GoI, which have been incorporated in the Master Circular for implementation.
DAY-NRLM is the flagship programme of GoI. Its major focus is to reduce poverty through building strong institutions for the poor, especially women, and enabling these institutions to access a range of financial services and livelihood services.
The detailed notification can be accessed here.
Liquidation of Aditya Birla Idea Payments Bank LimitedIn regard to voluntary winding up of Aditya Birla Idea Payments Bank Limited, the Bombay High Court has appointed Shri Vijaykumar V. Iyer, Senior Director of Deloitte Touche Tohmatsu India LLP as the liquidator.
The detailed notification can be accessed here.
Account aggregator (AA) ecosystem – technical specificationsThe Reserve Bank Information Technology Private Limited (ReBIT) has formulated and released the core technical specification for the participants of the AA ecosystem. These specifications are set in place to ensure that the movement of customers’ financial information across various financial entities, with different information technology (IT) infrastructure, is secured and authorised. It also includes specifications for the application programming interface (API) as well.
The detailed notification can be accessed here.
8 PwC
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 2019
Liquidity risk management framework for NBFCs and core investment companiesThe RBI has revised the guidelines for the Liquidity Risk Management framework for NBFCs and core investment companies with an aim to strengthen the asset liability management.
All non-deposit (ND) taking NBFCs with asset size of INR 100 crore and above, systemically important core investment companies and all deposit taking NBFCs irrespective of their asset size, need to adhere to the set of liquidity risk management guidelines, excluding type 1 NBFC-NDs, non-operating financial holding companies and standalone primary dealers.
Additionally, it has included the guidelines for liquidity coverage ratio (LCR), including disclosure standards, which the said institutions need to follow.
The detailed notification can be accessed here.
Issue of additional instruments for augmenting regulatory capital for RRBsThe RBI has issued a directive with additional options for augmenting regulatory capital funds to regional rural banks (RRBs).
In order to maintain the capital to risks asset ratio (CRAR) and increase the business requirements, it has allowed RRBs to issue perpetual debt instruments (PDIs) eligible for inclusion as Tier 1 capital.
The detailed notification can be accessed here.
Regulatory news
9 PwC
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 2019
Other regulatory news
Investment policy of clearing corporationsThe Securities and Exchange Board of India (SEBI) has circulated investment policies to all clearing corporations, including those in the International Financial Services Centre (IFSC).
It has permitted clearing corporations to make investments in the overnight funds which will be considered as liquid assets. The combined investment made by these corporations in liquid funds and overnight funds should not exceed 10% of the investible resources.
The detailed notification can be accessed here.
Mapping of unique client code (UCC) with DEMAT accounts of the clientsIn order to take preventive measures, SEBI has prescribed an early warning mechanism. It has directed the stock exchanges/clearing corporations/depositories to devise a mechanism to detect diversion of clients’ securities and to share the information among themselves.
In order to ease the reconciliation process, clients’ UCC will be mapped with their demat accounts. UCC provided by a trading member (TM) to the client will be mapped to his/her demat account.
The detailed notification can be accessed here.
10 PwC
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 2019
Disclosures by listed entities of defaults on payment of interest/repayment of principal amount on loans from banks/financial institutions and unlisted debt securitiesUnder SEBI’s Listing Obligations and Disclosure Requirements, listed entities need to disclose material events/information to stock exchanges. They also need to report delay/default in payment of interest/principal on debt securities such as non-convertible debts (NCDs) and non-convertible redeemable preference shares (NCRPS) etc.
It is applicable to all the listed entities, with specified securities (equity and convertible securities), NCDs and NCRPS.
The disclosures should be made to the stock exchanges if the entity defaults on payment of interest/instalment obligations on loans, including revolving facilities like cash or credit from banks/financial institutions and unlisted debt securities.
This notification also provides details of other information like timing of disclosure, disclosure formats etc.
The detailed notification can be accessed here.
Other regulatory news
11 PwC
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 2019
Global regulatory news
ECB - Consolidated Banking Data for end-June 2019The European Central Bank (ECB) has released the consolidated banking data (CBD) for June 2019.
Total assets of credit institutions headquartered in euro area and the European Union (EU) have increased. Non-performing loans ratio for the credit institutions in the euro area and the EU has dropped year-on-year by 0.6 % points to 3.04% in June 2019.
International Financial Reporting Standards (IFRS), Implementing Technical Standards (ITS) and national accounting standards are used, wherever they are needed for the supervisory reporting of the European Bank Authority (EBA).
The detailed notification can be accessed here.
Euro area financial stability environment remains challengingThe ECB has observed an increase in downside risks to the global and the euro area economic growth, which is challenging financial stability. This observation was based on the November 2019 Financial Stability Review (FSR) of the ECB.
While low interest rates are supporting economic activities, at the same time, there is an increase in risk taking in some sectors such as insurance companies, investment funds and pension funds.
Non-financial corporate sector and the property sector continue to be vulnerable. Prospects of the euro area banks’ profitability have declined as well.
The detailed notification can be accessed here.
ESMA advises EC on the supervisory regime for third-country CCPsThe European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has given technical advice to the European Commission (EC) on third-country central counterparties (TC-CCPs), with revised European Market Infrastructure Regulation (EMIR 2.2).
It has advised on tiering, comparable compliance and fees charged to the TC-CCPs. ESMA has also advised on the development of the Delegated Acts EMIR 2.2, which will be finalised once the EC holds consultations publicly.
The detailed notification can be accessed here.
12 PwC
Regulatory news
Other regulatory news
Global regulatory news
Contact us
Event coverage – PwC’s NBFC compliance event
Financial RegTech Newsletter - November 2019
This newsletter has been researched and authored by Anurag Gupta and D Kalyani.
Contacts
Acknowledgements
Vivek BelgaviPartnerTechnology ConsultingPwC [email protected]+91 9820280199
Anurag GuptaPrincipal ConsultantTechnology ConsultingPwC [email protected]+91 7760314901
Vishal MotwaniDirector Technology Consulting PwC [email protected]+91 7506800901
Sayan MaitiPrincipal ConsultantTechnology ConsultingPwC [email protected]+91 7411019947
Hardik Gandhi Associate DirectorTechnology ConsultingPwC [email protected]+91 9819379703
13 PwC
Event coverage – PwC’s NBFC compliance event
Regulatory news
Other regulatory news
Global regulatory news
Contact us
About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with over 276,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
In India, PwC has offices in these cities: Ahmedabad, Bengaluru, Bhopal, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, Pune and Raipur. For more information about PwC India’s service offerings, visit www.pwc.in
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
© 2019 PwC. All rights reserved.
pwc.in
Data Classification: DC0
This document does not constitute professional advice. The information in this document has been obtained or derived from sources believed by PricewaterhouseCoopers Private Limited (PwCPL) to be reliable but PwCPL does not represent that this information is accurate or complete. Any opinions or estimates contained in this document represent the judgment of PwCPL at this time and are subject to change without notice. Readers of this publication are advised to seek their own professional advice before taking any course of action or decision, for which they are entirely responsible, based on the contents of this publication. PwCPL neither accepts or assumes any responsibility or liability to any reader of this publication in respect of the information contained within it or for any decisions readers may take or decide not to or fail to take.
© 2019 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.
SUB/December2019-M&C3955
