RBI's Mandate: Tech-driven Compliance Monitoring for Financial Sector

The Reserve Bank of India (RBI) has issued a strong message to financial institutions “Embrace technology for internal compliance monitoring, or risk facing the consequences.” This directive, issued on January 31st, 2024, comes in the wake of the central bank placing major restrictions on Paytm Payments Bank for "persistent non-compliance."

RBI’s Official Notification on Compliance Monitoring
RBI’s Official Notification on Compliance Monitoring

Why the push for Tech?

The financial sector stands as one of the most rigorously regulated domains. The RBI's assessment of existing compliance monitoring systems in select entities revealed a concerning reality. While some institutions have adopted basic automation techniques like spreadsheets and basic software, many crucial aspects are still handled manually. This raises concerns about accuracy, efficiency and overall effectiveness of compliance efforts.

RBI’s Recommendations:

To address these shortcomings, the RBI has mandated the implementation of comprehensive, integrated and workflow-based technological solutions for compliance monitoring. These systems should ideally:

  • Bring together business, compliance, IT, and senior management on a unified platform for seamless communication and information sharing.
  • Offer functionalities for identifying, assessing, monitoring, and managing compliance requirements.
  • Ensure timely identification and escalation of any potential or actual compliance issues.
  • Require recording and approval from relevant authorities for any deviations or delays in compliance.
  • Offer a real-time, comprehensive dashboard to senior management, summarizing the institution's overall compliance status.

The Deadline:

Financial institutions have until June 30th, 2024, to review their existing processes and implement the necessary changes. This deadline emphasizes the urgency and seriousness of the RBI's directive, signalling a paradigm shift towards a tech-driven approach to compliance management.

This move by RBI signals a crucial shift towards a more technology compliance approach within the Indian financial sector. Financial institutions can now ensure more effective and uniform compliance practices, while also proactively managing risks and fostering trust with stakeholders.

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