NBFCs-UL and NBFCs-ML to have a compliance function and board-approved policy: RBI

Circular No. RBI/2022-23/24 Ref.No.DoS.CO.PPG./SEC.01/11.01.005/2022-23, Dated 11.04.2022

RBI has directed the Non-Banking Financial Companies in the Upper Layer (NBFC-UL) and Middle Layer (NBFC-ML) NBFC-ML to put in place a Board approved policy and a Compliance Function, including the appointment of a Chief Compliance Officer (CCO), based on the specified framework latest 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.

Apart from having staff with basic qualifications and practical experience in business lines/audit & inspection functions, the Compliance Function shall have adequate staff members with knowledge of statutory/regulatory prescriptions, law, accountancy, risk management, information technology, etc. Appropriate succession planning shall be ensured to avoid any future skill gap.

The CCO shall be appointed for a minimum fixed tenure of not less than 3 years. However, in exceptional cases, the Board / Board Committee may relax the minimum tenure by one year, provided appropriate succession planning is put in place.

A prior intimation to the Senior Supervisory Manager, Department of Supervision, Reserve Bank of India, shall be provided before the appointment, premature transfer, resignation, early retirement, or removal of the CCO. Such information shall be supported by a detailed profile of the candidate along with the ‘Fit and Proper’ certification by the MD & CEO of the NBFC, confirming that the person meets the prescribed supervisory requirements and rationale for changes if any.

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