Regulatory Updates #33: RBI on FDI in ‘other financial services’, SEBI on compensation agreements & more

Bar & Bench will bring you the latest regulatory and policy updates from different ministries and regulatory authorities. In the this edition of the Bar & Bench Regulatory Updates, we analyse the latest circulars by the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA)..RBI.RBI issues operating guidelines for Payments, Small Finance Banks.The RBI has issued operating guidelines for payment banks[pdf] and small finance banks[pdf] in India, intended to improve financial inclusion in the country. These guidelines have largely been drawn from the Basel standards..For both these differentiated financial entities, the mandatory capital adequacy ratio has been set at 15%, within which, the common equity tier-1 ratio must be maintained at 6%..[Read more at Bloomberg Quint].RBI permits 100% FDI in more financial services.In a bid to attract more foreign investment in India, the RBI has permitted 100% foreign direct investment [pdf] under the automatic route in ‘Other Financial Services’ (as defined in the notification) carried out by NBFCs..However, in financial services activities which are not regulated or partly regulated by any financial sector regulator or where there is lack of clarity regarding regulatory oversight, foreign investment will be allowed up to 100% under the Government approval route..[Read more at Bloomberg Quint].RBI introduces framework for penalising payment banks .The RBI has issued guidelines [pdf] for penalizing payments systems and banks under the Payments and Settlements Systems Act, 2007 (Act). As per the guidelines, payments systems and banks can be told to shell out penalties between Rs. 5 lakh and Rs. 1 crore for contravention of the provisions of the Act, non-compliance of directions or order made thereunder, and violations of terms and conditions of authorisation..SEBI.Consultation papers.SEBI has released two consultation papers:.The first one [pdf], being an outcome of the SEBI Board meeting conducted recently, deals with the regulation of compensation agreements between private equity (PE) firms and managerial personnel at companies..SEBI has noted that PE firms enter into agreements with top personnel and key managerial personnel, which allow the PE firms to share gains made by them with such personnel, if the stock prices of the company in questions crossed a certain threshold. It has been suggested that shareholders approval be taken by the means of an ordinary resolution prior to entering into such arrangements..[Read more at Business Standard].The second one [pdf], seeks to do away with the exemption provided to mutual fund distributors under the SEBI (Investment Advisors) Regulations, 2013. As an unintended consequence of this exemption, distributors are acting like advisors which has converted it into a 16-lakh crore industry..SEBI wants to segregate advisory services from distribution services. Think of it this way- a chemist prescribing medicines..[Read more at Livemint &Business Standard].SEBI extends stock exchanges infrastructure to investment advisors.After permitting mutual fund distributors to utilise the stock exchange infrastructure for purchasing and redeeming mutual fund units, SEBI has permitted [pdf] SEBI registered investment advisors to utilise this infrastructure to purchase/ redeem mutual fund units directly from mutual fund/ asset management companies..SEBI eases rules for clearing members on bullion as collateral .Clearing members in commodity bourses can now keep a higher quantum of bullion [pdf] as collateral i.e. 30% of the total liquid assets of the clearing member as opposed to the earlier permitted limit of 15%..MCA.MCA notifies Companies (Incorporation) Fourth Amendment Rules, 2016.These new rules [pdf] are expected to make incorporation of companies easier in India. With the introduction of Simplified Proforma for Incorporating Company Electronically (SPICE), paperwork and incorporation time will be reduced, further improving ease of doing business in India..SPICE is intended to bring ease of doing business on a par with global norms where the incorporation time is as low as one day..[Read more at Livemint]