1.1 NOTIFICATIONS page page 2 page 2 page 2 Participants

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1 Regulatory Update ISSUED 15 th November 2017 India Edition INDEX OCTOBER RBI REGULATORY UPDATES & DEVELOPMENTS 1.1 NOTIFICATIONS page Notification to Authorised Dealer Banks Notification to Non-Banking Financial Companies Notification to Prepaid Payment Instrument Issuers, System Providers and System page 2 page 2 page 2 Participants PRESS RELEASES RBI Releases Draft Directions regarding Framework for Authorisation of ETP Under Section 45 W of the RBI Act, 1934 RBI Releases Discussion Paper on Foreign Exchange Trading Platform for Retail Participants 17 NBFCs Surrendered their Certificate of Registration to RBI 2.0 SEBI REGULATORY UPDATES & DEVELOPMENTS 2.1 CIRCULARS Investments by FPIs in Government Securities Categorisation and Rationalisation of Mutual Fund Schemes Non-compliance with the MPS Requirements Criteria for Settlement Mode of Commodity Derivative Contracts SEBI (IFSC) Guidelines, 2015 Amendments Review of Block Deal Window Mechanism page 4 page 4 page 5 page MARKET UPDATES RBI Imposes Fine on YES Bank and IDFC Bank over Compliance Issues RBI Imposes Restrictions on Banking Business of Oriental Bank of Commerce SEBI Orders Forensic Audits of Three Companies SEBI Bans Fourteen Companies from Accessing the Capital Markets RBI Sets Up High Level Task Force on PCR in India page 5 CONTACTS MAHENDRA ZAVERI Director, Consultancy MZaveri@cclcompliance.com MEENAKSHI IYER Director, Consultancy MIyer@cclcompliance.com Consultants (India) Private Limited 314, 3 rd Floor, Midas, Sahar Plaza, M.V. Road, Andheri(E), Mumbai f w

2 1.0 RBI REGULATORY UPDATES & DEVELOPMENTS 1.1 Notifications Notification to Authorised Dealer Banks Risk Management and Inter-Bank Dealings Facilities for Hedging Trade Exposures invoiced in INR The Reserve Bank of India (RBI) has revised its instructions on Risk Management and Inter-Bank Dealings Facilities for Hedging Trade Exposures invoiced in Indian Rupees (INR). Non-residents are now permitted to hedge the currency risk arising out of INR invoiced exports from, and imports to, India with AD Category I banks in India. The revised circular permits the central treasury of such non-residents to undertake hedges for, and on behalf of, such non-residents with AD Category I banks in India, as per the existing Model I and Model II (see circular dated 12 th October 2017) Notification to Non-Banking Financial Companies Master Directions - NBFC P2P Lending Platform (Reserve Bank) Directions, 2017 During October 2017, RBI issued new directions for Non-Banking Financial Companies (NBFCs) (see notification dated 4 th October 2017) in terms of which no NBFC can start or carry on the business of a Peer to Peer (P2P) lending platform without obtaining a Certificate of Registration from RBI. RBI has stipulated that every company seeking registration with it as an NBFC-P2P should have net owned funds of not less than Rupees twenty million or such higher amount as may be specified by RBI. The directions lay down the eligibility criteria, scope of activities that can be undertaken and the prudential norms, fund transfer mechanism, operational guidelines, and disclosure requirements etc. to which a NBFC would need to adhere. Every existing and prospective NBFC-P2P would need to make an application for registration to the Department of Non-Banking Regulation, RBI, Mumbai. Existing NBFC-P2Ps are required to apply within three months from 4 th October Notification to Prepaid Payment Instrument Issuers, System Providers and System Participants Master Direction on Issuance and Operation of Prepaid Payment Instruments On 11 th October 2017, RBI issued a Master Direction on the Issuance and Operation of Prepaid Instruments (PPIs), which are applicable to PPI Issuers, System Providers and System Participants. The key provisions of the Master Direction are below: a. Interoperability: RBI has done away with the need for the sender and recipient of a mobile payment to be using the same mobile wallet service for a payment. Wallets are now interoperable, and payments done via one can be received on another wallet. As per the direction, this has to be implemented by all wallet players within six months. Users will be able to transfer funds between their wallets and bank accounts through Unified Payments Interface (UPI) soon. In the later phases, interoperability will extend to PPIs issued in the form of cards as well. With this, the need for multiple KYCs by different wallet operators for the same entity (users/merchants) would not be required. b. Know Your Customer (KYC): Two types of KYCs have been introduced for PPIs - minimum KYC PPI and full KYC PPI. While the first is subject to a limit of INR 10,000, the second has a limit of INR 1 lakh as the amount outstanding in wallet at any point of time. The minimum KYC PPI must be converted into a full KYC PPI by the end of 12 months of issuance. All existing authorised PPI issuers have been directed to ensure compliance with the revised requirements by 31 st December Limited, Level 2, Gate Village 7 F f + Web:

3 1.2 Press Releases RBI Releases Draft Directions Regarding Framework for Authorisation of ETP Under Section 45 W of the RBI Act, 1934 RBI has released its Draft Directions for authorising Electronic Trading Platforms (ETP) for financial market instruments. Comments on the draft guidelines have been invited from banks, market participants and other interested parties by 10 th November It has been decided to issue a framework for authorisation of ETP for financial instruments. The broad objectives of these directions are as below: Development of markets through transparent trading, safe settlement systems and standardisation of instruments Promoting fair, equitable, orderly and non-discriminatory access to markets Prevention of market abuse and ensuring financial integrity through effective monitoring and surveillance Improving dissemination of trading information and thereby reducing information asymmetry RBI Releases Discussion Paper on Foreign exchange trading platform for retail participants RBI released on its website a discussion paper on Foreign exchange trading platform for retail participants. The discussion paper proposes a scheme to encourage transparent and fair pricing in the retail forex market by developing a foreign exchange platform for retail participants along the lines of the Forex Clear (FX-Clear) platform of Clearing Corporation of India Limited (CCIL) NBFCs Surrendered their Certificate of Registration to RBI 17 NBFCs have surrendered the Certificate of Registration granted to them by RBI. RBI, in turn, has cancelled these certificates of registration under the powers conferred on it under section 45-IA (6) of the Reserve Bank of India Act These companies cannot transact the business of Non-Banking Financial Institution, as laid down in clause (a) of Section 45-I of the RBI Act, SEBI REGULATORY UPDATES & DEVELOPMENTS 2.1 Circulars Investments by FPIs in Government Securities Subsequent to the announcement made by RBI, SEBI has revised the limit for investment by Foreign Portfolio Investors (FPIs) in Government Securities, for the quarter October December 2017, as below: Limit for FPIs in Central Government securities has been enhanced to INR 189,700 crore. Limit for Long Term FPIs (Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks) in Central Government securities has been revised to INR 60,300 crore. The debt limit category of State Development Loans (SDL) has been enhanced as follows: a. SDL-General has been enhanced to INR 30,000 crore. b. SDL-Long Term has been enhanced to INR 9,300 crore. The aforementioned limit is effective from 4 th October Categorisation and Rationalisation of Mutual Fund Schemes In order to standardise the scheme categories of Mutual Funds, SEBI has introduced a categorisation of Mutual Fund schemes (see circular dated 7 th October 2017). The key highlights of the circular are as below: Limited, Level 2, Gate Village 7 F f + Web:

4 The schemes will be broadly classified in five groups - equity, debt, hybrid, solution oriented and other schemes. The details of the scheme categories under each of the above groups would be as prescribed by SEBI (see circular dated 7 th October 2017). Large cap, mid cap and small cap investments for equity schemes have been defined based on the market capitalisation. Mutual Funds would need to ensure that schemes devised under the new norms would not result in duplication of other plans offered by them. Only one scheme per category would be permitted except Index Funds, Exchange Traded Funds (ETFs) tracking different indices; Fund of Funds having different underlying schemes; sectoral or thematic funds investing in different themes. Mutual Funds will be required to analyse each of their existing schemes in light of these categories and submit their proposals to SEBI after obtaining due approvals from their trustees at the earliest and, in any case, not later than two months. The Mutual Fund houses will have to carry out the necessary changes in all respects within a maximum period of three months from the date of observations from SEBI on the proposals. The provisions of the circular will apply to all existing open ended schemes of all mutual funds; all such open ended schemes where SEBI has issued final observations but have not yet been launched; and all open-ended schemes in respect of which draft scheme documents have been filed with SEBI Non-Compliance with the MPS Requirements SEBI has directed recognised stock exchanges / depositories to maintain consistency and uniformity of approach in the enforcement of Minimum Public Shareholding (MPS) norms mandated under the Listing Regulations, with respect to non-compliant listed entities, their promoters and directors. The key broad principles are as below: Within 15 days from date of observation of non-compliance, stock exchanges would issue notices to such entities intimating all actions taken/ being taken and advise the entities to ensure compliance. Stock exchanges would intimate the depositories to freeze the entire shareholding of the promoter and promoter group in listed companies that have failed to meet the MPS norms till the date of compliance. The promoters, promoter group and directors of the listed entity would not hold any new position as director in any other listed entity till the date of compliance by such entity. On observing non-compliance, the recognised stock exchange would impose a fine of INR 5,000 per day of non-compliance on the listed entity and such a fine would continue to be imposed till the date of compliance. In cases where the listed entity continues to be non-compliant for a period more than one year, the recognised stock exchange would impose an increased fine of INR 10,000 per day of non-compliance and this would continue to be imposed till the date of compliance by the said listed entity. Further, in such cases, the recognised stock exchange would intimate the depositories to freeze all the securities held in the demat account of the promoter and promoter group till the date of compliance by such entity. The above restriction would not be a hindrance for the entity with respect to compliance with the minimum public shareholding norms through the methods specified/approved by SEBI. The recognised stock exchange may also consider compulsory de-listing of the non-compliant listed entity Criteria for Settlement Mode of Commodity Derivative Contracts In order to effectively discharge the hedging function, SEBI has introduced the following broad guidelines for deciding the appropriate settlement mode for commodity derivative contracts: The first preference of settlement type would always be physical delivery, Limited, Level 2, Gate Village 7 F f + Web:

5 Cash settlement of commodity derivatives contracts can be considered only in certain scenarios with a proper justification. a. If physical delivery is difficult to implement due to any reason, which may include the following: o if the commodity is intangible o if the commodity is difficult to store due to low shelf life or inadequate storage infrastructure o if it is difficult to physically handle and transport the commodity because of inadequate logistics and transport infrastructure b. There is availability of a reliable benchmark price of the commodity, which can be used as reference for settlement price. Exchanges would be required to satisfy themselves that the reference spot price is a fair indicator of prevailing prices and not susceptible to any distortion and manipulation. The aforesaid provisions came into effect from 16 th October SEBI (IFSC) Guidelines, 2015 Amendments In order to further streamline the operations at International Financial Services Centres (IFSC), SEBI has clarified that any entity based in India or in a foreign jurisdiction may form a company in IFSC to act as a trading member of a stock exchange and/or a clearing member of a clearing corporation in IFSC Review of Block Deal Window Mechanism During 2005, SEBI had issued guidelines on the execution of large size trades through a single transaction. In order to facilitate execution of such large trades, the stock exchanges were permitted to provide a separate trading window, and trade executed on this separate trading window was termed as a block deal. Based on the suggestions received by market participants, SEBI has decided to revise the framework for block deals by providing two block deal windows. The following changes have been introduced: Under the new rules, the morning window would operate between 8.45am and 9.00am with the afternoon session between 2.05 pm and 2.20 pm. While the previous day s closing price of the stock would be the reference price for execution of block deals for the morning session, the Volume Weighted Average Market Price (VWAP) of the trades executed in the cash segment between 1.45pm and 2.00pm would be the reference price for the afternoon session. The orders placed would be within ±1% of the applicable reference price in the respective windows. The minimum order size for execution of trades in the Block deal window would be INR 10 Crore. Every trade executed in the block deal windows must result in delivery and would not be squared off or reversed. The stock exchanges would disseminate the information of a block deal such as the name of the security, name of the client, quantity of shares brought / sold, traded price, etc. to the general public on the same day, after the market hours. The aforesaid provisions will come into operation with effect from 1 st January MARKET UPDATES 3.1 RBI Imposes a Fine on YES Bank and IDFC Bank Over Compliance Issues RBI has imposed a monetary penalty of INR 6 crore on Yes Bank and INR 2 crore on IDFC Bank for violating its regulations. Yes Bank has been fined for non-compliance with the directions issued by RBI on Income Recognition Asset Classification (IRAC) norms and delayed reporting of an information security incident involving ATMs of the bank. RBI also fined IDFC Bank for non-adherence to certain directions pertaining to sanction and renewal of loans and advances. Limited, Level 2, Gate Village 7 F f + Web:

6 3.2 RBI Imposes Restrictions on Banking Business of Oriental Bank of Commerce RBI has imposed certain restrictions on the banking activities of the government - owned Oriental Bank of Commerce, which has suffered huge losses due to increase in bad loans. RBI initiated Prompt Corrective Action (PCA) in view of high non-performing assets. Oriental Bank of Commerce will face restrictions in terms of opening new branches, hiring staff and lending to sub-investment grade companies. PCA is imposed when thresholds related to capital, asset quality and earnings are breached. The bank can continue to accept deposits and give small tickets loans. 3.3 SEBI Orders Forensic Audits of Three Companies After finding evidence of misuse of books of accounts and misrepresentation of financials by Landmarc Leisure Corporation Ltd, Jalan Cement Works and Ritman Infra, SEBI has ordered a forensic audit for these 3 firms. SEBI observed that Landmarc Leisure Corporation Ltd has utilised the investors' money in a manner detrimental to the interests of minority shareholders. With regard to Jalan Cement Works, it was found that the company's income, investments, inventories, loans and advances reflect significant transactions with connected or related parties, for which the firm has failed to provide adequate documentary support. In the case of Ritman Infra, SEBI made observations regarding misrepresentation of financials by the firm. 3.4 SEBI Bans Fourteen Companies from Accessing the Capital Markets SEBI banned 14 companies from the capital markets for raising funds without complying with the public issue norms. These companies had issued equity shares between and and raised INR 6.80 crore through such issuances. Since these shares were issued to more than 50 investors by the company, it qualified as a public issue under the SEBI norms, which required compulsory listing on recognised stock exchanges and also required the filing of a prospectus, which they failed to do. 3.5 RBI Sets Up High Level Task Force on PCR in India RBI constituted a 10 member High Level Task Force on Public Credit Registry (PCR) for India, which will suggest a roadmap for developing a transparent, comprehensive and near-real-time PCR for India. The task force would review the current availability of information on credit in India, assess the gaps in India that could be filled by a comprehensive PCR, and study the best international practices on PCR. Envisaged as being an extensive database of credit information for India that is accessible to all stakeholders, PCR is expected to enhance efficiency of the credit market, increase financial inclusion, improve ease of doing business, and help control negligence. Limited, Level 2, Gate Village 7 F f + Web:

7 ABOUT Established in the in 1988, 2006 in the UAE and 2012 in India, s Mumbai operation provides specialist compliance services to organisations that are regulated by RBI and SEBI. Consultancy Services & Support Documentation o RBI Regulated Firms o SEBI Regulated Firms Authorisation with RBI and SEBI Compliance Advisory o Assurance Reviews o Compliance Support Services o AML, CFT & ABC Regulatory Technology C.O.R.E If you wish to discuss how can assist you with any of the issues raised in this Regulatory Update, please contact one of the principals using the details below: Tel: India@cclcompliance.com or write to us at: Consultants (India) Private Limited 314, 3rd Floor, Midas, Sahar Plaza, M.V. Road, Andheri (E), Mumbai This Regulatory Update provides information about the consultative documents and publications issued by the RBI and SEBI which are still current, proposed changes to the Rules and Guidance set out by RBI and SEBI, actual changes to Rules and Guidance that have occurred in the months leading up to the update, and other matters of relevance to RBI & SEBI-regulated firms. This Regulatory Update is intended to provide general summarised guidance only, and no action should be taken in reliance on it without specific reference to the particular RBI and SEBI Notifications referred to. Limited, Level 2, Gate Village 7 F f + Web: