'Upper layer' NBFC tag for Tata Sons calls for a new compliance policy

Tata Sons will have to appoint a new chief compliance officer (CCO)

With the Reserve Bank of India (RBI) classifying the Tata group’s holding company, Tata Sons, as an upper-layer non-banking finance company (NBFC), its board will have to approve the compliance policy applicable to such NBFCs, including appointing a new chief compliance officer (CCO) reporting to the top management.

The measures must ensure the independence of the compliance function and its right to freely disclose findings and views to senior management and board/board committee, according to the RBI.

Under the RBI norms, the compliance function must ensure strict observance of all statutory and regulatory requirements for the NBFC, including standards of market conduct, managing conflict of interest, treating customers fairly and ensuring the suitability of customer service.

A Tata Sons spokesperson did not comment on the RBI move. The banking regulator gave three months to put in place a board-approved policy for the adoption of the enhanced regulatory framework and chart out an implementation plan for adhering to the new set of regulations.

According to an RBI circular dated April 11 this year, any change in the CCO’s role has to be informed to the Department of Supervision, the RBI. The department must be kept in the loop before appointment, premature transfer, resignation, early retirement or removal of the CCO. “Such information shall be supported by a detailed profile of the candidate along with the ‘Fit and Proper’ certification by the MD & CEO of the NBFC, confirming that the person meets the prescribed supervisory requirements and rationale for changes, if any,” the RBI stated.

The CCO will have to ensure compliance with regulatory/ supervisory directions given by the RBI in both letter and spirit in a time-bound manner. In the circular, the RBI said it expects an effective compliance programme where all risk mitigation plan (RMP) and monitorable action plan (MAP) points are complied with within prescribed timelines. The RBI also warned unsatisfactory compliance with RMP/MAP may invite penal action.

Tata Sons is 66 per cent owned by the Tata Trusts and 18.4 per cent by the Mistry family. The company turned private limited in 2018 after a corporate war between the Mistry family and Tata group broke out. The Supreme Court in 2021 ruled in favour of the Tata group.

RBI's prescription
 

* Tata Sons will have to appoint a new compliance office

* CCO will have to report to RBI of key developments

* Tata Sons board will have to approve the compliance policy

* Risk mitigation plan/monitorable action plan to be in place