Regulatory updates

On 1 October 2024, the RBI issued new compounding rules- the Foreign Exchange (Compounding Proceedings) Rules, 2024 (new compounding rules) which supersede the erstwhile Foreign Exchange (Compounding Proceedings) Rules, 2000 (old compounding rules). The key changes introduced by the new compounding rules are as follows:

1. Digitization: Digital payment options have been introduced for payment of application fee and penalty amounts.
2. Enhanced monetary limits: Generally a contravention is allocated to a compounding officer basis the monetary limit of the contravention. These monetary limits have now been expanded so that more powers are delegated to regional offices and special cells of RBI. This change is intended to reduce the burden on the senior officers, as most of the less serious contraventions will be handled by subordinate officers and it is also likely to expedite the overall compounding process.
3. Non-compoundable cases: A dedicated new rule 9 is introduced in the new compounding rules, as against proviso to Rule 8(2) of the old compounding rules, to specifically list out the cases which cannot be compounded. These cases include:

• matters where the amount is not quantifiable,
• matters attracting special provisions relating to assets held outside India in contravention of FEMA or Section 3(a) of FEMA i.e. where proceeding relates to a serious contravention suspected of money-laundering, terror financing or affecting the sovereignty and integrity of the nation
• where the adjudicating authority has already passed an order imposing penalty.

The new compounding rules are applicable with effect from 12 September 2024.

To access the text of the new compounding rules, please click here

In November 2010, the RBI, vide a notification required ARCs to be a member of at least one Credit Information Company (CIC) and recommended that it provides the CIC the required data. However, with an aim to maintain a record of borrowers' credit history after the transfer of loans from banks and NBFCs to ARCs, on 10 October 2024, the RBI issued revised guidelines for ARCs to align their membership with CICs similar to the guidelines for banks and NBFCs. . Key points include:

• Mandatory CIC membership: ARCs must become members of all CICs and submit data according to the credit reporting format prescribed by RBI.
• Data submission: ARCs must ensure data is updated regularly on a fortnightly basis or at intervals agreed upon between the ARC and CIC
• Data rectification: Any rejected data must be corrected and resubmitted within seven days of receiving the rejection notice from the CIC.
• Best practices: ARCs should adopt best practices for CIC-related matters, including regular data updates, providing customer information, and appointing nodal officers.

Effective date: ARCs must establish systems and processes to comply with these guidelines by 1 January 2025.

To access the circular, please click here