RBI Tightens Investment Rules in NBFCs from Non-FATF Nations

The Reserve Bank of India on Friday placed restrictions on fresh investments in non-banking finance companies from countries red-flagged by the Financial Action Task Force.

"Investments in non-banking financial companies (NBFCs) from FATF non-compliant jurisdictions shall not be treated at par with that from the compliant jurisdictions," RBI said.

The Financial Action Task Force (FATF) annually recognizes jurisdictions with inadequate steps to prevent money laundering and terrorist funding (AML/CFT).

i) High-Risk Jurisdictions subject to a Call for Action
ii) Jurisdictions under Increased Monitoring.

A jurisdiction, whose name does not appear in the two aforementioned lists, shall be referred to as a FATF compliant jurisdiction, the RBI said.

The FATF non-compliant jurisdictions' contributions in NBFCs shall not be viewed on a par with those of compliant jurisdictions.

New investors from such jurisdictions as a whole should be smaller than the threshold of 20% of the voting power (including potential 1 voting power) of the NBFC, the release said.

However, existing investors of NBFCs prior to the declaration of the source or intermediate jurisdictions as non-compliant with the FATF can continue to invest or make additional investments under existing regulations in order to encourage business continuity in India.

Among the FATF high-risk list countries are the Democratic People's Republic of Korea and Iran. Among those classified under increased monitoring are Cambodia, Ghana, Jamaica, Mauritius, Pakistan, Panama, Zimbabwe and others.

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