What changed
The RBI has substituted definitions for 'Agency Business' and 'Referral Services' in the Master Direction, clarifying that agency business involves acting as an agent without risk participation, including marketing, sales, promotion, initial point of contact for grievance redressal, and other after-sale services. Referral services are limited to sharing information about products without continued customer interactions such as distribution, grievance redressal, or post-sales services. A new definition for 'Regulated financial products and services' has been inserted, covering products under RBI, SEBI, IRDAI, PFRDA, and overseas regulators including IFSCA. Sub-paras (1) and (2) of paragraph 7 and entire paragraph 8 of the Master Direction have been omitted, and paragraph 37 now restricts agency business to regulated financial products permitted under sub-section (a) to (m) and (o) of Section 6(1) of the Banking Regulation Act, 1949.
What it means for you
Small Finance Banks must now strictly limit their third-party product sales to regulated financial products, reducing exposure to unregulated offerings. The clearer distinction between agency and referral services means banks cannot engage in post-sale activities under referral arrangements, potentially impacting revenue from such partnerships. Compliance with the new definitions and product scope will require updates to internal policies and digital platforms by the effective date.
What you must do
- Review and update your bank's third-party product and service agreements to align with the new definitions of agency business and referral services.
- Ensure that only regulated financial products (as per RBI, SEBI, IRDAI, PFRDA, or IFSCA) are offered under agency business arrangements.
- Remove or revise any referral arrangements that involve continued customer interactions like distribution or grievance redressal.
- Update your website, mobile app, and digital banking channels to list only compliant third-party products by January 1, 2027.
- Train staff on the revised definitions and compliance requirements to avoid regulatory breaches.
Who it affects
Small Finance Banks, Third-party product and service providers (TPPSPs) partnering with SFBs, Customers of Small Finance Banks
What is the key difference between agency business and referral services now?
Agency business involves acting as an agent without risk participation, including marketing, sales, promotion, initial point of contact for grievance redressal, and other after-sale services. Referral services are limited to sharing information about products without continued customer interactions such as distribution, grievance redressal, or post-sales services.