INTRODUCTION
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This newsletter covers key updates for the month of November
2021 relating to banking law, company laws, securities laws, and
banking laws. In particular, we have covered: |
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(1) |
Banking laws: (a) Integrated Ombudsman Scheme, 2021 by the
Reserve Bank of India ("RBI"); and (b)
Discussion Paper of NITI Aayog on "Digital Banks: A Proposal
for Licensing and Regulatory Regime for India. |
(2) |
Securities laws: (a) Amendments to the Securities and Exchange
Board of India (Listing Obligations and Disclosure Requirements)
Regulations, 2015; and (b) Amendments to the Securities Exchange
Board of India (Intermediaries) Regulations, 2008 |
1. |
BANKING LAW
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Please see below the summary of the key banking law updates for
November 2021 |
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1.1. |
Integrated Ombudsman Scheme, 2021 by the
RBI |
1.1.1. |
The RBI, vide notification dated 12 November 2021, launched the
Reserve Bank - Integrated Ombudsman Scheme, 2021
("Scheme") which integrates the existing
three Ombudsman schemes of RBI namely (a) The Banking Ombudsman
Scheme, 2006; (b) The Ombudsman Scheme for Non-Banking Financial
Companies, 2018; and (c) The Ombudsman Scheme for Digital
Transactions, 2019. The scheme includes non-scheduled primary
co-operative banks with a deposit size of INR 500,000,000 (Indian
Rupees Five Hundred Million) and above thus adopting a 'One
Nation One Ombudsman' approach and making the mechanism for
dispute resolution jurisdiction neutral. The scheme has come into
effect on 12 November 2021. |
1.1.2. |
The scheme provides cost-free redressal of customer complaints
involving deficiency in services if they are not resolved to the
customer's satisfaction or not replied within a period of 30
(thirty) days by any entity that is regulated by the Reserve Bank
of India. |
1.1.3. |
Salient features of the Scheme are: (a) complainant does not
have to identify under which scheme he/she should file a complaint
with the ombudsman; (b) The scheme defines 'deficiency in
service' as the ground for filing a complaint, with a list of
exclusions. Therefore, the complaints will no longer be rejected
simply on account of not being covered under the grounds listed in
the scheme; (c) removal of restriction in relation to territorial
jurisdiction of ombudsman office; (d) complaints can be filed
online on complaint management system portal of RBI or through the
dedicated e-mail or sent in physical mode in the format; (e) the
multi-lingual contact centre under the scheme will provide
information/clarifications regarding the alternate grievance
redress mechanism of RBI and guide complainants in filing of a
complaint; and (f) regulated entity will not have the right to
appeal in cases where an award is given by the ombudsman against it
for not furnishing satisfactory and timely
information/documents. |
1.1.4. |
Please click here to read the Scheme. |
1.2. |
Discussion Paper by NITI Aayog on "Digital Banks: A
Proposal for Licensing & Regulatory Regime for
India" |
1.2.1. |
NITI Aayog, the public policy think tank of the government of
India, has released a discussion paper seeking comments from the
public on digital banks, and offering a template and roadmap for a
digital bank licensing and regulatory framework in India. The
discussion paper recommends the setting up of digital banks, i.e.,
banks that do not have physical branches, which would completely
work on the internet and other proximate channels to offer their
services. |
1.2.2. |
The discussion paper recommends a two-stage approach for the
licensing of a digital bank i.e., a restricted digital business
bank license which will be first stage and a full-stack digital
business bank license which will be the second stage in the
regulatory control over these digital banks. For the first stage,
the digital banks will be required to test their product in the
regulator sandbox of RBI. Upon successful completion of this step,
the digital bank can obtain the full-stack digital business bank
license. |
1.2.3. |
Further, the report has also recommended that the minimum paid
up capital requirement for the digital business bank license should
be INR 200,000,000 (Rupees Two Hundred Million) and the minimum
paid up capital requirement for the digital universal bank license
should be INR 2,000,000,000 (Rupees Two Billion). |
1.2.4. |
Please click here to read the discussion paper. |
2. |
SECURITIES LAW
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Please see below the summary of the key securities law updates
for November 2021 |
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2.1. |
Amendments to the Securities and Exchange Board of India
(Listing Obligations and Disclosure Requirements) Regulations,
2015 |
2.1.1. |
The Securities and Exchange Board of India
("SEBI"), vide its notification dated 9
November 2021, amended the Securities and Exchange Board of India
(Listing Obligations and Disclosure Requirements) Regulations, 2012
("LODR regulations"). The notification
has amended the provisions related to related party and related
party transactions by listed entities. The amendments will come
into effect from 1 April 2022. |
2.1.2. |
As per the amendments, a person or entity shall be deemed to be
a 'related party': (a) if such person or entity is a
promoter or a promoter group of the listed entity, irrespective of
their shareholding in the listed entity; or (b) if such person or
entity is holding 20% (twenty percent) of the equity shares in the
listed entity, either directly or beneficially, shall be deemed to
be a related party. This threshold is set to be lowered to 10% (ten
percent) from 1 April 2023. Prior to the amendment, only persons
holding more than 20% (twenty percent) shareholding in the listed
entity, were categorised as related parties of such listed
entity. |
2.1.3. |
The definition of related party transactions will also be
widened to include any transactions between the subsidiaries of a
listed entity on one hand, and the subsidiaries of the related
party of the listed entity on the other hand. Further, with effect
from 1 April 2023 related party transactions shall include within
its scope any transaction between a listed entity or its subsidiary
on one hand and any other entity on the other hand which has the
effect of benefitting the related parties of the listed entity or
any of its subsidiaries. |
2.1.4. |
The threshold for material related party transactions has also
been amended. Earlier transactions exceeding 10% (ten percent) of
the consolidated annual turnover of the listed entity was deemed to
be a material related party transaction, whereas now in the event a
related party transactions exceeds INR 10,000,000,000 (Rupees Ten
Billion) or 10% (ten percent) of the annual consolidated turnover
of the listed entity, whichever is lower, then such a transaction
would be a material related party transaction. |
2.1.5. |
With effect from the date of these amendments, a listed entity
shall be required to submit to the stock exchanges disclosures of
related party transactions, every 6 (six) months, and within 15
(fifteen) days from the date of publication of its standalone and
consolidated financial results, whereas from 1 April 2023, these
disclosures will have to be made every 6 (six) months and on the
date of the publication of the standalone and consolidated
financial results. |
2.1.6. |
Further, SEBI, vide its circular dated 22 November 2021 has also
notified the format for reporting of related party transactions to
the stock exchanges. The listed entities are advised to make RPT
disclosures every 6 (six) months in the format notified by the
SEBI. |
2.1.7. |
Please click here and here to read the amendment notification and
the circular, respectively. |
2.2. |
Amendment to the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008 |
2.2.1. |
SEBI, vide its notification dated 17 November 2021, has amended
the SEBI (Intermediaries) Regulations, 2008
('Intermediaries Regulations'),
substituting Schedule II thereof, which lays down the criteria for
'fit and proper' persons to hold a registration as an
intermediary. The amendment has come into effect from 17 November
2021. |
2.2.2. |
Pursuant to the amendment while determining whether an applicant
meets the 'fit & proper person' criteria under the
Intermediaries Regulations, in addition to the principal officer,
directors or managing partners, compliance officer and key
management persons of the intermediary SEBI may now even consider
whether the promoters or persons holding controlling interest or
exercising control over the applicant or intermediary fulfil the
'fit and proper' person criteria, or not. |
2.2.3. |
Further, for determining the 'fit and proper person'
criteria, the person or intermediary should not be subject to any
of the following disqualifications - i) criminal complaint/filed
pending under section 154 of the Code of Criminal Procedure; ii)
charge sheet filed for economic offences by any enforcement agency
and pending proceedings thereto; iii) an order of restraint,
prohibition or debarment on matters of securities laws or financial
market passed the board/regulatory authority/enforcement agency;
iv) any recovery proceedings initiated by board pending against
such person; v) conviction of any offence involving moral
turpitude; vi) winding proceedings passed or initiated; vii)
declared insolvent and not discharged; viii) unsoundness of mind;
ix) a wilful defaulter; x) declared fugitive economic offender; or
xi) any other disqualification as specified by the board. |
2.2.4. |
In the event any person is declared as not a 'fit and proper
person' to be an intermediary, such person shall not be
eligible to apply for a registration as an intermediary for a
period of 5 (five) years, from the date of such an order.
Additionally, in the event any person associated with a registered
intermediary feels to meet the revised criteria, the intermediary
shall be required to ensure that such person is replaced within a
time period of 30 (thirty) days from such disqualification. |
2.2.5. |
The amendment also clarifies that an intermediary shall have to
fulfil the 'fit and proper' person criteria, not only at
the time of obtaining the registration, but at all times during the
continuation of the registration as well. |
2.2.6. |
These amendments were approved at SEBI's board meeting on 28
September 2021. |
2.2.7. |
Please click here to read the amendment notification. |
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.