The Reserve Bank of India, on April 11th 2022, released the Framework for Compliance Function and Role of Chief Compliance Officer in Non-Banking Financial Companies in Upper Layer and Middle Layer (NBFC-UL & NBFC-ML).
The Compliance Function is a vital part of efficient governance, along with the internal control and risk management processes. The NBFCs in Upper Layer and Middle Layer shall treat the prescriptions in the circular as a set of minimum guidelines only and frame their guidelines by taking into account their corporate governance framework, the scale of operations, risk profile and organizational structure accordingly.
The compliance function shall ensure strict observance of all statutory and regulatory requirements for the NBFCs, including standards of market conduct, managing conflicts of interest, treating customers fairly and ensuring the suitability of customer service.
The Board/Board Committee3 shall ensure that an appropriate Compliance Policy is put in place and implemented. Further, the Board/Board Committee shall prescribe the periodicity for review of Compliance risk.
The Senior Management shall carry out an exercise, at least once a year, to identify and assess the major compliance risks 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 risks, and report promptly to the Board/Board Committee on any material compliance failures while ensuring that appropriate remedial or disciplinary action is taken.
Compliance Function shall be responsible for undertaking the following activities at the minimum:
The CCO shall be the nodal point of contact between the NBFC and the regulators/supervisors and shall necessarily be a participant in the structured or other regular discussions held with RBI.
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