The Financial Action Task Force (FATF) is an inter-governmental policy-making body built to set standards and encourage efficient implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other relevant threats to the integrity of the financial system. It operates with governments to enact legislation and regulatory improvements in the financial system. It was established in 1989 by the G7 Summit which was held in Paris. The Financial Action Task Force (FATF) regularly identifies jurisdictions with weak measures to fight money laundering and terrorist financing.
A jurisdiction will be referred to as a FATF compliant if its name does not appear in the above-mentioned lists.
The Reserve Bank of India has issued a circular imposing limitation on investments in payments system operators (PSOs) by new entities from jurisdictions that have weak measures with an aim to maintain firmness and deal with money laundering and terrorist financing activities. The main highlights of the circular are discussed below.
Identifying jurisdictions with weak standards:
The Financial Action Task Force (FATF) regularly identifies jurisdictions with weak standards to fight money laundering and terrorist financing. It uses the following publications to do so,
A jurisdiction whose name doesn’t appear in the above-mentioned lists is referred to as a FATF compliant jurisdiction. Investments in PSOs from FATF non-compliant jurisdictions will not be treated at par with compliant jurisdictions.
The restriction imposed on existing investors:
Existing PSO investors holding their investments before the classification of the intermediate jurisdiction as FATF non-compliant may proceed with the investments or continue further investments as per existing regulations to support the flow of business in India.
The restriction imposed on new investors:
New investors from or through non-compliant FATF jurisdictions, either in existing PSOs or in entities seeking permission as PSOs, are prohibited from obtaining, ‘significant influence’ as prescribed in the applicable accounting standards in the concerned PSO. New investments (directly or indirectly) from FATF non-compliant jurisdictions, should account for less than 20 per cent of the voting power of the PSO.
The circular further addresses that the above guidelines can be reamended and will also apply to the entities that have applied for or that aims to apply for authorisation as a PSO according to the Payment and Settlement Systems Act, 2007.
This circular clarifies the law and sets out the restrictions by permitting non-controlling investments and exempts existing investments including additional investment in such NBFCs to maintain the flow of business in India. It also clarifies potential voting rights and how it helps confirm the position of the Indian regulatory system. The transparency about the restrictions on investments is expected to help FDI’s in structuring their India entry, especially in the financial services sector.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Consulting & Governance shall not be responsible for any errors caused due to human error or otherwise.
