Collateral security, a sore point

BL 10 Mar 14

Banks’ demand for collateral for loans from small businesses is a prevalent sore point among SMEs. This was underlined when the audience applauded in response to Muhammed Kunju, CEO Crust ‘n’ Crumb, one of the CII Southern Regional Award Winners, made the point about banks demanding collateral security being a stumbling block for entrepreneurs. However, IOB was an exception and was generally supportive, he said. M Narendra, the Bank’s chairman and managing director who was on stage could be seen beaming widely in relief as he sat back with a satisfied look.

Salute to the sporting spirit

Saumil Majmudar, Co Founder and CEO, EduSports Pvt Ltd, a promoter of a company that encourages school students to take to sports, remarked on an uncanny coincidence. When the concept was new a few years back, quite a few schools had turned down the idea. But it was a school in Madurai, one run by the TVS Group that had first taken to the concept. Now, several years later, he had received a letter from Gopal Srinivasan, a key member of the TVS Group, stating that he had won the CII award.

Small towns making it big

It is often easy to discount small towns and cities when it comes to opportunities for a commercial enterprise. But it is a presumption that is easily proved wrong. B Santhanam, Chairman, CII Southern Region, pointed out that a majority of the over 200 nominees vying for the award was from the small towns and cities. There is a ground swell of innovation and enterprise that is happening in these places that is being missed in the information over load about the gloom and doom of a slow economy.

Teaching to take risks

Success is commonly highlighted but often failures precede that elusive goal. And failure teaches more lessons than success. This is an aspect in entrepreneurship that is often ignored. S Gopalakrishnan, President, CII, underscored this point when he said academic institutions need to teach entrepreneurs to take risks and handle failure. After all, more than 90 per cent of start- ups typically fail. But business schools often focus on creating managers who are taught to take no risk or low risk when running organisations. OUR BUREAU

(This article was published on March 10, 2014)

Does KYC help know your customer?

BL Anna Mazzon 10 mar 14

Financial regulations lead up to a lot of costly documentation. This ironically allows scamsters to slip through

A UK-based NGO that investigates corruption around the world unmasked a massive money-laundering scheme involving the small Central Asian nation of Kyrgyzstan and four UK-based ‘shell’ companies. The risk it exposed is the kind that KYC regulations were created to prevent.

By the time the scheme was discovered in 2010, over a billion dollars had passed through foreign bank accounts set up by entities that were obviously illegal. Oneowner was a Russian who died three years before the company was formed. None of their accounts were properly registered, and one was legally classified as dormant.

Know Your Customer (KYC) anti-money-laundering regulations are becoming increasingly important globally to help businesses protect themselves from identity theft, money laundering and financing terrorism. Nevertheless, episodes like these are all too common and the costs of complying with KYC’s anti-corruption due diligence procedures are high. According to the International Monetary Fund, incidents involving money-laundering, compliance violations of KYC regulations, and other breaches are estimated to cost between two and five per cent of the world’s GDP.

Managing the burden of proof

High-profile money-laundering incidents involving major global banks are not new, although in recent years a number of firms have been fined record sums for laundering and KYC violations. This was seen most recently in January when the Financial Conduct Authority, Britain’s financial regulator, fined a South African bank for failures in anti-money-laundering controls. As a result, firms are becoming more diligent, organised and proactive in managing the risks and compliance, and are now spending more time and money trying to remedy and avoid repetition of damaging incidents and violations. The operating challenges, however, are considerable. The primary obligations with which the industry must comply are known by an array of acronyms: anti-money-laundering (AML) and anti-bribery regulations (ABC), tax transparency initiatives such as the US Foreign account tax compliance act (FATCA), the Dodd-Frank act (DF), markets in financial instruments directive (MiFID), and European market infrastructure regulation (EMIR) just to name a few.

We recently researched how financial institutions and their clients view their key challenges around KYC compliance. The challenges most often cited were differing processes for different businesses or jurisdictions, time-consuming documentation and the lack of harmonised document collection systems.

Basic requirements

At a minimum, organisations are required to document clients’ business type, their source of funds and wealth, the purpose of specific transactions and the expected nature and level of transactions. Many of the sources of data, which include certificates of incorporation, lists of company directors, directors’ passports, and cross holdings, can be very difficult to track down; collection and verification can take several months. Because there are no standards for documentation, there is little consistency and a lot of duplication. . In addition, financial institutions often ask for documents from their clients that are not explicitly required under KYC rules. Different regulators in different jurisdictions also require different identity documents. Regulators also expect the financial institutions to review and refresh the data on typically one-, three- and five-year cycles depending on the type of client.

Global banks are spending in the hundreds of millions to manage and update information that has to be redone with every new regulation. Demand for professionals to manage KYC compliance is rising but there are not enough individuals with the proper compliance training. Financial industry collaboration will be important in establishing standards to ensure more consistency in KYC documentation requirements.

(The writer is global head of Thomson Reuters KYC Program)

(This article was published on March 10, 2014)

RBI hikes FII limit for Manappuram Finance to 49%

IRIS 10-MAR-14


The Reserve Bank of India (RBI) said on Friday that Foreign Institutional Investors (FIIs), through primary market and stock exchanges, can now purchase up to 49% of the paid up capital of Manappuram Finance under the Portfolio Investment Scheme (PIS). 

Earlier the company has passed resolutions at the board of directors' level and a special resolution by the shareholders, agreeing to enhance the limit for the purchase of its equity shares and convertible debentures by Foreign Institutional Investors (FIIs).

Accordingly, the Reserve Bank has notified, regarding raising of aggregate ceiling for investments by FIIs in Indian companies under PIS.

Shares of the company gained Rs 0.8, or 3.6%, to trade at Rs 23.05. The total volume of shares traded was 456,259 at the BSE (11.37 a.m., Monday).



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