What changed
RBI has decided to place details of penalties levied on Primary Dealers in the public domain for transparency. A press release will be issued outlining the circumstances of the penalty, and the penalty must be disclosed in the 'Notes on Accounts' of the dealer's annual report.
What it means for you
Primary Dealers face increased reputational risk as penalties become public. This aligns with global best practices and pressures dealers to strictly comply with RBI guidelines. Banks and lenders dealing with Primary Dealers should factor this disclosure into their risk assessments.
What you must do
- Ensure your compliance team reviews all RBI operational guidelines to avoid violations that could lead to public penalties.
- Update your annual report preparation process to include mandatory disclosure of any RBI-imposed penalties in the 'Notes on Accounts'.
- Monitor RBI press releases for any penalty announcements that may affect counterparty risk assessments.
Who it affects
Primary Dealers
What triggers a penalty on a Primary Dealer?
Penalties are imposed for any violation or circumvention of RBI's operational guidelines or the terms of the undertaking given by the Primary Dealer, after a due process of notice and hearing.
How will the penalty be made public?
RBI will issue a press release detailing the circumstances of the penalty, and the Primary Dealer must also disclose the penalty in the 'Notes on Accounts' of its next annual report.
When does this disclosure requirement take effect?
The guidelines are effective from July 1, 2010.