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 February 12, 2021 (“Notification”) has come up with instructions to regulate investments in NBFCs from Financial Action Task Force (“FATF”) non-compliant jurisdictions.
FATF compliant jurisdiction is defined to mean a jurisdiction whose name does not appear in the following FATF publications –
This list is often referred to as the “blacklist” and the countries whose name features in this list is often considered as high risk jurisdiction and the FATF calls on all members and urges all such jurisdiction to apply enhanced due diligence, and in the most serious cases countries are called upon to apply counter measures to protect international financial system from the ongoing money laundering, terrorist financing, and proliferation financing (ML/TF/PF) risk emanating from such countries.
This list is often referred to as the “grey list”. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed time frames and is subject to increased monitoring.
As per the Notification, any investor from a FATF non-compliant jurisdiction to the existing NBFCs or in any company seeking to register as NBFCs (“Investee Company”), shall be prohibited to acquire directly or indirectly more than 20 % (twenty per cent) of the voting power (including potential voting power ) of the Investee Company. However, the investors holding investments prior to classification of the source or intermediate jurisdictions as FATF non-compliant jurisdictions Can continue with the investments or bring in additional investments as per extant regulations to support continuity of business in India.
Please find the Amendment at https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NBFCS8FEB3B6C99654335837E941464F7ACB9.PDF.