THE ROAD TO RESOLUTION OF FINANCIAL SERVICE PROVIDERS - IBC

 

The Imperative for a distinct framework for the resolution of financial firms

The financial sector is facing a combination of liquidity, governance and business issues, on account of which certain Non Banking Financial Companies (“NBFCs”) are facing solvency concerns.

The severe liquidity crunch for NBFCs was caused  as banks and other financial institutions have curtailed refinancing the loans of NBFCs on account of which several NBFCs and other financial institutions faced debt servicing and solvency issues. These have sought to be resolved through the Stressed Asset Directions issued by the Reserve Bank of India (“RBI”) on June 7, 2019. This was fraught with complexities given the diverse sets creditor, including market borrowings  each of whom were governed by different financial regulators.
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Depository Receipts - SEBI Framework SMM

The Securities and Exchange Board of India (SEBI) has introduced a framework for issuance of depository receipts (DRs) by companies listed or to be listed in India ( DR Framework), by its circular dated October 10, 2019.

In the early years of liberalisation and up to the time SEBI permitted qualified institutions placement (QIPs) in 2006, DR issuances formed a significant and important part of foreign investment into the Indian equity markets. However, in the past five years, there have been very few DR issuances, for a variety of reasons including due to regulatory uncertainty around operational guidelines for DRs and concerns in relation to compliance with rules under the anti-money laundering legislation.
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P2P lending in India Rules and Regulations

Fintech has massively transformed money flow and settlement transactions among millennials. Out of numerous existing fintech models, one is peer to peer (P2P) lending. P2P lending platforms play the role of an intermediary between two individuals, the lender and the borrower. With the upscaling growth rate of such platforms it has become a target for regulatory attention and the Reserve Bank of India (RBI) came up with regulation on October 4, 2017, vide the master direction bearing number DNBR(PD) 090/0.10.124/2017-18 (Master Direction) on non-banking financial peer-to-peer lending platforms.[1]

The Master Direction covers all prospective and existing P2P platforms (NBFC-P2P), which perform as P2P lending platforms on the fulfilment of certain conditions (one of which includes holding a net-owned fund of INR 2 crore). These registered P2P lending platforms would appear on the RBI list of registered NBFC-P2Ps as and when granted the certificate of registration. As per the last updated list[2], there are 11 NBFC- P2Ps registered while more than 50 still exist and are awaiting clearance from the RBI, Department of Non-Banking Regulation, Mumbai.
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SEBI’s Framework for Innovation Sandbox - Fintech

Amidst the fast-paced growth of the fintech industry in India, financial regulators in the country have been swift to recognise each such development and keep pace with the market. One particularly interesting development is the global adoption of regulatory sandboxes.

From 2016, a range of committees constituted by different financial regulators began to advocate adoption of regulatory sandboxes, drawing from success stories in other jurisdictions.[1] But 2019 marks a significant moment, as three of India’s prominent financial regulators have rolled-out either draft or final frameworks on regulatory sandboxes for fintech.[2]

The frameworks seek to spur fintech innovation in India and have been welcomed by all stakeholders alike. The framework released by the Securities and Exchange Board of India (SEBI) adopts a particularly holistic approach towards regulation of many different aspects of a sandbox. In this post, we seek to critique the ‘Framework for Innovation Sandbox’, released by SEBI on May 20, 2019 (Sandbox Framework).
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Foreign Portfolio Investor - Corporate Debt - Voluntary Retention Route

As the Indian economy has grown over the years, so have the means of raising foreign debt by Indian companies. What began with limited investment channels for foreign banks and certain qualified institutional investors, has now flourished into a robust foreign debt investment market. Based on the commercial considerations driving a deal, Indian corporates can now raise ECBs under multiple tracks, issue various kinds of rupee denominated bonds, or avail of monies through fund structures such as alternative investment funds (AIFs) and real estate investment trusts (REITs).

Added to this mix is the foreign portfolio investment (FPI) route. What sets FPI apart is the degree of commercial flexibility it accords to investors and companies. For example, end-use and pricing norms applicable to FPI investments are relatively relaxed. Because of this, FPI is often the preferred option for raising debt, particularly short-term debt and working capital funding requirements.[1]
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stamp Act amendments 2019

The key amendments that the Finance Act, 2019 proposes to the Indian Stamp Act, 1899 have been examined in Decoding the Amendment to the Indian Stamp Act, 1899 for Debentures – Part I. The impact of the amendments on debentures have also been analysed against the prevailing stamping arrangement for debentures.

This second part deals with the interplay between the definitions of ‘debentures’ and ‘securities’ under the Amendment, and issues relating to the implementation of the Centralised Collection Mechanism (CCM).
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Amendments to the Indian Stamp Act, 1899 for Debentures

The Finance Act, 2019[1] (Amendment) proposes to make some significant amendments to the Indian Stamp Act, 1899 (Act). The primary objective of the Amendment is to set up a zero-evasion centralised collection mechanism under which stamp duty is collected through one agency, at one place and on one instrument for securities market transactions.

It also seeks to standardise the stamp duty payable on issuance, sale and transfer of securities market instruments. It does so by removing multiple instances of stamp duty, waiving stamp duty on certain instruments, and removing the ability of the State Governments to determine rates or levy stamp duty in addition to the Act[2].
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Banning of Unregulated Schemes Ordinance, 2019

In the aftermath of the Saradha scam, the Standing Committee of Finance (Committee) in its 21st report dated September 21, 2015 suggested the introduction of a comprehensive regulatory framework governing all entities engaged in activities involving acceptance of deposits from the public. While making this recommendation, the Committee observed that certain entities were engaged in financial as well as non-financial activities and therefore, it was difficult to identify the appropriate regulator for such entities. Such entities fall under the jurisdiction of various regulatory bodies and in spite of overlapping regulations, several such entities were not regulated by any regulator.

In view of the suggestions of the Committee, a high level Inter-Ministerial Group (Group) was formulated for identifying gaps in the existing regulatory framework. The Group suggested the enactment of a comprehensive central act to criminalise the solicitation, promotion, acceptance and/or operation of ‘unregulated deposit schemes’. In line with the recommendations of the Committee and the Group, the Banning of Unregulated Schemes Ordinance, 2019 (Ordinance) was promulgated on February 21, 2019.
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Prohibition of Insider Trading Regulations 2015 in India , Amendments

The Securities and Exchange Board of India (SEBI) ended the year with a bang by issuing a number of notifications on December 31, including the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 (PIT Amendment Regulations). The PIT Amendment Regulations come into force on April 1, 2019 and will have significant impact on the manner in which listed companies and intermediaries navigate the market conduct framework.
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Last month, the Securities Appellate Tribunal (SAT) passed an order in favour of Factorial Master Fund[1] (Factorial). This overturned the order of the SEBI Whole Time Member who had held that Factorial had contravened the provisions of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) by trading in the securities of L&T Finance Holdings Limited (LTFH), while in possession of unpublished price sensitive information (UPSI).

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