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Regulatory Alert: RBI issues instructions on investments in NBFCs from FATF non-compliant jurisdictions

16 February 2021

Investment in NBFCs from FATF non-compliant jurisdictions

With a view to curb money laundering and terrorist financing in Non-Banking Financial Companies (NBFCs), the Reserve Bank of India, vide its notification dated 12 February 2021 (Notification) has come up with instructions to regulate investments in NBFCs from Financial Action Task Force (‘FATF’) non-compliant jurisdictions.

As per the Notification, FATF compliant jurisdiction is defined to mean a jurisdiction whose name does not appear in the following FATF publications –

  1. High-Risk Jurisdictions subject to a Call for Action
  2. Jurisdictions under Increased Monitoring

According to this notification

Investment by

Investee Company

Condition for investment as per the Notification

New Investors from or through FATF non-compliant jurisdictions

Existing NBFCs or in companies seeking certificate of registration (COR) as NBFC                   

Prohibited from acquiring directly or indirectly ‘significant influence’ in the Investee Company.  i.e., new investors from such FATF non-compliant jurisdictions can in aggregate, hold less than 20% of the voting powers (including potential voting power#) of the NBFC

Investors holding investments prior to classification of the source or intermediate jurisdiction/s as FATF non-compliant jurisdictions

Existing NBFCs

Can continue with the investments or bring in additional investments as per extant regulations to support continuity of business in India

#Potential voting power could arise from instruments that are convertible into equity, other instruments with contingent voting rights, contractual arrangements, etc. that grant investors voting rights (including contingent voting rights) in the future

The instructions contained in this Notification are applicable from immediate effect.