Over 1,200 non-banking financial companies, recently flagged off as ‘highly risky’ and prone to not complying with a provision of the anti-money laundering law, have hurriedly submitted their records to the government to be identified as legally compliant, officials said today.
These firms, from across the country, submitted the required documents to the Financial Intelligence Unit (FIU) recently, after the agency in February had published the names of 9,491 such firms for non-compliance of a provision under the Prevention of Money Laundering Act, they said.
The flagged NBFCs filed their records and furnished the identity of their principal officers to the FIU after their names were put in the public domain, the officials said. The FIU works under the Union finance ministry to check crimes in the economy and alert enforcement agencies about such instances.
A senior official said that the finance ministry has now taken their names off the “high risk” list. “Over 1,200 such names have been taken off the list even as more names are in the process to be taken off. The ministry had said that as soon as they comply with the law, they will be cleared,” he said.
The rest of the cases are under process and those found ‘defunct or non-compliant’ will be barred from operating with the help of the Reserve Bank of India, the official said.
Under the PMLA, the NBFCs, which include cooperative banks, are required to furnish details about the identity of their clients, maintain records and furnish the information to the FIU.
“As these unregistered NBFCs remain outside the reporting ambit of the FIU, they pose a risk to the integrity of the country’s financial system and, therefore the FIU has published the list of such ‘non-compliant’ entities which have not fulfilled their obligation under the PMLA and the rules relating to non-registration of the principal officers,” the finance ministry had said last month.
“The list has been published to enable the bankers to conduct enhanced due diligence of the transactions carried out by such NBFCs,” the finance ministry had added.
The activities of these institutions came under the scanner of the FIU after the scrapping of currency notes of Rs 1,000 and Rs 500 in November 2016. “The publication of names is primarily a step by the FIU to make the public and the banks aware that these NBFCs are not law compliant and that they should refrain from indulging into transactions with them,” a finance ministry official had told PTI.
According to records, there are about 12,000 NBFCs in the country at present. An NBFC is a company registered under the Companies Act and engages in the business of loans and advances, acquisition of shares, stocks, bonds, debentures and securities issued by the government or local authority, besides other marketable securities.
The NBFCs lend and make investments and, hence, their activities are akin to that of the banks. However, they cannot accept demand deposits and do not form part of the payment and settlement system and cannot issue cheques drawn on themselves.