Regulations
RBI widens StanChart, HSBC probe to other foreign banks

Besides RBI, capital market regulator SEBI may also join the investigations, as there are concerns of funds from these banks being routed to stock markets through foreign investors and other entities

 
New Delhi: The Reserve Bank of India (RBI) has widened its probe into the affairs of British banking giants HSBC and Standard Chartered to a host of other foreign banks for alleged breach of controls against money laundering and terror financing, reports PTI.
 
Besides, capital market regulator Securities and Exchange Board of India (SEBI) may also join the investigations, as there are concerns of funds from these banks being routed to the stock market through foreign investors and other entities, sources said.
 
Standard Chartered Bank (StanChart) is listed in the Indian stock market.
 
A senior regulatory authority official said the inspections are being conducted to ensure these banks' compliance to various fair banking norms in the wake of certain global events.
 
However, executives at some of the banks admitted that queries being raised by the regulators are serious in nature and particularly aimed at ensuring effective controls against money laundering and financing of terrorism, among others.
 
The investigations by Indian agencies follow developments in the US, where a host of European banks, besides StanChart and HSBC, are being investigated for their alleged role in exposing the American financial system to money laundering and terror financing risks.
 
Sources said Indian investigations would not be affected by the recent settlement reached by StanChart in the US, wherein it agreed to pay $340 million to settle charges that it entered into secret transactions involving $250 billion with Iran despite sanctions against that country.
 
The settlement has been reached only with respect to an investigation by the New York state banking regulator, the New York Department of Financial Services and does not cover the probes being conducted by the various federal regulators in the US, including the Treasury Department.
 
Last week, the Indian government informed the Parliament that Reserve Bank of India (RBI) is scrutinising the anti- money laundering (AML) and know your customer (KYC) systems of StanChart and HSBC.
 
Besides, Financial Intelligence Unit-India (FIU-IND) has also initiated a fact-finding exercise related to HSBC's operations in India and its compliance to AML and counter financing of terrorism (CFT) regime.
 
RBI is also seeking details from British financial sector regulator Financial Services Authority (FSA) about the two UK-based global banking giants, who have significant presence in India and whose outsourcing of key oversight jobs to India has come under the US scanner in separate probes related to issues like money laundering and terror financing.
 
Both the matters have come to the fore within a month's time, raising serious concerns over the impact on the image of Indian outsourcing industry and possible implication on India's fight against money laundering and terror funding.
 
Indian agencies are gathering all possible details about the two banks, as also various other banks under scanner of the US regulators, for any possible lapse in their compliance to controls against money laundering and terror financing.
 
RBI and UK's FSA signed a new memorandum of understanding (MoU) last month for exchange of information and co-operation in surveillance operations.
 
The MoU provides for period discussions between RBI and FSA about matters like HSBC and StanChart, along with other supervisory developments and matters concerning banks having operations in India and the UK.
 
New York state's key banking regulator, the Department of Financial Services (DFS), had accused StanChart of hiding about 60,000 secret transactions with the Iranian government, involving a whopping $250 billion, and exposing the US financial system to terrorists, weapon dealers and drug kingpins.
 
HSBC's staff in India have also come under the scanner in a separate probe in the US for deficiencies in their role as "offshore reviewers" of the global banking giant's compliance to safety mechanism against money laundering and terrorist financing.
 
Stanchart was also charged of having deficient money laundering controls in its outsourcing of work to a captive unit in India.
 
Another probe found that an OCC (Office of Comptroller of the Currency, which is the primary federal regulator for banks in the US) visit to India in 2007 had revealed "weak monitoring procedures" in HSBC's internal control systems.
 
While HSBC has been charged with outsourcing these jobs mostly as cost saving measures, Stanchart has been accused of sending such important functions to offshore locations to escape "watchful eye" of the US regulators.
 
Besides seeking information from the UK regulator, the RBI is also waiting for inputs from the US regulators, including the US Federal Reserve, state regulators and other agencies, sources said.
 
RBI's main focus is on the banking operations of HSBC and Stanchart in India and therefore it is relying mostly on assistance from the UK, where these banks are headquartered.
 

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SEBI mulls IPO investments through mobile, credit cards

A final decision would be taken by SEBI after examining operational and legal feasibilities of enabling investors to make payments for IPOs through ATM, debit and credit cards and mobile banking

 
New Delhi: In a major leap towards using latest technology in financial markets, market regulator Securities and Exchange Board of India (SEBI) plans to allow investors to make payments for initial public offerings (IPOs) through ATM, debit and credit cards, as also via mobile banking, reports PTI.
 
A final decision would be taken by SEBI after examining operational and legal feasibilities of enabling investors to make such payments for IPOs, a senior official said.
 
The proposed move is part of SEBI's efforts to attract more and more investors to the market through IPO route.
 
SEBI has already announced various steps for reforms in the primary market, which include increasing the reach of IPOs in electronic form through nation-wide broker network of stock exchanges.
 
After its last board meeting on 16th August, SEBI Chairman UK Sinha said investors can approach brokers at over 1,000 locations to apply in IPOs physically or electronically.
 
Stock exchanges have also been asked to facilitate investors to view the status of their IPO applications on the websites, similar to the secondary market transactions.
 
Besides, SEBI has modified its rules to enable retail applicants to get a minimum lot of shares in IPOs.
 
SEBI has also decided to make the brokers responsible for uploading the bid on the exchange platform and for banking the cheque and handling of application supported by blocked amount (ASBA) system. In ASBA system, the money remains in the applicant's bank account till the time of share allotment.
 
The brokers would be compensated by the issuer, so that they are interested in directly or indirectly marketing the issue as well.
 

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PSU insurers asked not to charge low premium on fire insurance

The Finance Ministry also said that while the insurance companies are providing huge discounts to big customers while 'snatching business' from other PSU insurers, premiums have been hiked up continuously for individual retail policies

 
New Delhi: Concerned over increasing losses in fire insurance business, the Finance Ministry has asked four state-run general insurers to desist from charging 'ridiculously' low premium from corporates and undercutting one another, reports PTI.
 
In a letter to the heads of four state-owned or public sector (PSU) general insurance companies, the ministry said that the insurers are focusing on increasing business even at the cost of incurring losses.
 
"The PSUs are advised to be more cautious and prudent in underwriting fire business by devising a proper underwriting / marketing strategy to maintain its age-old status of a profitable segment of non-life insurance business," the letter said.
 
The ministry issued this directive to United India Insurance, Oriental Insurance, New India Assurance and National Insurance -- after it came to its notice that the insurers are "offering a ridiculous level of 100% discount on the standard fire policies by not charging premium at all for the basic policy but only for add-on covers".
 
"Such kind of extremely negative business procuring tendency, especially by continuously underwriting of premium by PSUs pricing cannot be allowed to continue, and, therefore, all the four insurance companies shall ensure that the companies desist from snatching renewals of business of other PSU companies," it said.
 
Fire insurance account of over 50% of a general insurers' portfolio.
 
The ministry also said that while the insurance companies are providing huge discounts to big customers while 'snatching business' from other PSU insurers, premiums have been hiked up continuously for individual retail policies.
 
"As a result of which there is a huge price distortion where individuals and retail policyholders who are otherwise not in a position to bargain are made to pay disproportionately higher level of premium per policy, compared to what it should be vis-?-vis such corporate account holders who have the bargaining power and are able to get such windfall discounts," the letter said.
 
It said that since the detariffing of fire insurance premium rates since 2007, there have been unhealthy competition among the PSU insurance companies.
 
It also asked the insurance companies to keep the claim to premium ratio at less than 100% by a more "realistic" pricing of the fire insurance cover.
 

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