What changed
RBI issued a circular on February 12, 2021, stating that investments from FATF non-compliant jurisdictions will not be treated at par with compliant ones. New investors from such jurisdictions cannot directly or indirectly acquire 'significant influence' (20% or more voting power, including potential voting rights) in an NBFC or ARC. Existing investors who held stakes before the jurisdiction was listed as non-compliant may continue or bring additional investments under extant regulations.
What it means for you
NBFCs and ARCs must now screen new investors for FATF compliance status and ensure aggregate investment from non-compliant jurisdictions stays below the 20% voting power threshold. This adds compliance burden but strengthens India's anti-money laundering framework. Lenders should update their KYC and investor onboarding processes to flag FATF non-compliant sources.
What you must do
- Update investor onboarding policies to check FATF compliance status of source or intermediate jurisdictions.
- Ensure new investments from FATF non-compliant jurisdictions do not cross 20% voting power (including potential voting rights).
- Document existing investors who were invested before their jurisdiction became non-compliant, and allow them to continue or add funds per normal rules.
- Train compliance teams on FATF lists and the definition of 'significant influence' under accounting standards.
Who it affects
Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs), Asset Reconstruction Companies (ARCs), Investors from FATF non-compliant jurisdictions, Compliance and KYC teams at NBFCs and ARCs
What is the threshold for 'significant influence' under this circular?
The circular defines significant influence as 20% or more of voting power (including potential voting power from convertible instruments or contingent rights). New investors from FATF non-compliant jurisdictions must stay below this threshold.
Can an existing investor from a FATF non-compliant jurisdiction bring in more money?
Yes, if the investor held their investment before the jurisdiction was classified as non-compliant, they may continue or bring additional investments as per extant regulations to support business continuity.
Does this apply to investments made through intermediate jurisdictions?
Yes, the circular covers investments from or through FATF non-compliant jurisdictions, meaning the source or any intermediate jurisdiction must be compliant.