PFRDA (Custodian of Securities) (Amendment) Regulations, 2023

Editor2 19 Feb 2024 204 Views 0 comment Print Corporate Law | Notifications, Notifications/Circulars

Introduction

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced significant amendments to the Custodian of Securities Regulations, marking a pivotal shift in the regulatory framework governing the custody of pension scheme assets in India. The amendments, officially titled as the Pension Fund Regulatory and Development Authority (Custodian of Securities) (Amendment) Regulations, 2023, aim to refine the operations, supervision, and risk management of custodians handling pension scheme assets. This article delves into the essence of these amendments, their implications for custodians, pension funds, and subscribers, and provides a comprehensive analysis of their expected impact on the pension fund industry.

Detailed Analysis

The 2023 amendments usher in a series of modifications designed to elevate the standards of internal controls, operational conduct, and risk management among custodians of securities. Key changes include the refinement of the definition of custodial services, the introduction of stringent eligibility criteria for custodians, and the establishment of robust operational guidelines aimed at safeguarding the assets of pension schemes.

One of the hallmark changes is the enhanced focus on the objective of the regulations, now aimed at standardizing the framework for the registration, monitoring, and supervision of custodians. This reflects a clear intent to protect pension scheme assets and manage risks more effectively. The deletion and substitution of various clauses within the regulations signify a move towards more specific, stringent requirements for custodial services, ensuring that custodians possess the necessary approvals, infrastructure, and capabilities to manage pension scheme assets responsibly.

The amendments also clarify the eligibility criteria for custodians, emphasizing the necessity for a track record with the Securities and Exchange Board of India (SEBI) and imposing restrictions on cross-holdings to prevent conflicts of interest. These changes are poised to enhance the integrity and independence of custodians, ensuring that their operations are not influenced by vested interests of pension funds or their sponsors.

Moreover, the procedural guidelines for the grant of certificates of registration and the operational commencement of custodians have been revised to ensure that only entities that meet the stringent criteria and are fully prepared to undertake their responsibilities are allowed to operate. The introduction of an explicit voting policy and cybersecurity policy adherence requirement further underscores the regulatory focus on transparency, security, and governance.

Conclusion

The Pension Fund Regulatory and Development Authority (Custodian of Securities) (Amendment) Regulations, 2023, represent a significant step forward in the evolution of pension fund regulation in India. By tightening the regulatory framework for custodians of securities, the PFRDA aims to ensure higher standards of security, transparency, and accountability in the management of pension scheme assets. These amendments are expected to foster a more robust, secure, and efficient pension fund ecosystem, ultimately benefiting subscribers by enhancing the protection of their assets and ensuring the orderly growth of pension schemes. As the industry adapts to these changes, the focus will undoubtedly shift towards compliance, operational excellence, and the adoption of best practices in custodial services.

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PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY
NOTIFICATION
New Delhi, the 19th February, 2024

PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY (CUSTODIAN OF SECURITIES)
(AMENDMENT) REGULATIONS, 2023

No. PFRDA/16/12/06/0001/2017-REG-CUST.— In exercise of the powers conferred by sub-section (1) of section 52 read with clauses (e), (n), (o), (p) and (w) of sub-section (2) thereof of the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013), the Pension Fund Regulatory and Development Authority hereby makes the following regulations to amend the Pension Fund Regulatory and Development Authority (Custodian of Securities) Regulations, 2015, namely:-

1. These regulations may be called the Pension Fund Regulatory and Development Authority (Custodian of Securities) (Amendment) Regulations, 2023.

2. These shall come into force on the date of their publication in the official gazette.

3. In the Pension Fund Regulatory and Development Authority (Custodian of Securities) Regulations, 2015, as amended from time to time (hereinafter referred to as ‘the principal regulations’), the following amendments are made.

I. In sub-regulation (2) of regulation 1 of the principal regulations, the objective of regulation shall be substituted as follows:

”The objective of the regulations is to standardize the framework for registration, monitoring, supervision and internal control of custodian of securities to enable it to establish high standards for internal control and operational conduct, with the aim of protecting the assets of the pension schemes covered under the Act and ensuring proper management of risk.”

II. In sub-regulation (1) of regulation 2 of the principal regulations,

a. Clause (c) shall be deleted;

b. Clause (e) shall be substituted as follows:

“(e) custodial services‖ shall mean custodial services as defined under the SEBI (Custodian) Regulations, 1996 (with amendments thereof) save to the extent permitted by the Authority, in accordance with the investment guidelines;”

c. Clause (g) shall be deleted;

d. Clause(h) shall be deleted;

III. Sub-regulation (2) of regulation 2 of the principal regulations shall be deleted;

IV. Sub-regulation (3) of regulation 3 of the principal regulations shall be substituted as follows:

“(3) No custodian of securities shall commence any activity relating to pension schemes covered under the Act, except in accordance with the conditions of a certificate of registration granted by the Authority and in conformity with the provisions of the Act, rules and these regulations‖

V. Sub-regulation (4) of regulation 3 of the principal regulations shall be deleted;

VI. Sub-regulation (5) of regulation 3 of the principal regulations shall be deleted;

VII. Sub-regulation (2) of regulation 4 of the principal regulations shall be substituted as follows:

”(2) Upon the selection process being initiated through a public notice, an eligible entity desirous to undertake the business of custodian of securities may make an application accompanied by non-refundable application fee, along with applicable taxes and levies thereon as specified in the Second Schedule.”

VIII. Sub-regulation (1) of regulation 5 of the principal regulations shall be substituted as follows:

”5. Application to conform to requirements.- (1) An application for grant of certificate of registration is liable to be rejected, inter alia on any of the following grounds, namely:

(a) is not complete in all respects and does not conform to the requirements specified in these regulations and the selection process;

(b) does not contain such additional information as required by the Authority;

(d) is not in compliance with the eligibility requirements as specified in these regulations and the criteria laid down in the selection process; or

(e) in the opinion of the Authority, the application is not in the interest of subscribers or orderly growth of the pension schemes covered under the Act.”

PFRDA (Custodian of Securities) (Amendment) Regulations, 2023

IX. Sub-regulation (2) of regulation 6 of the principal regulations shall be substituted as follows:

”(2) The applicant shall furnish such information and clarification to the satisfaction of the Authority, within the time granted by the Authority.”

X. Sub-regulation (2) of regulation 7 of the principal regulations shall be substituted as follows:

”(2) For the purpose of verification of information, the Authority may appoint any person including any of its officers, an auditor or external agency.”

XI. Sub-regulation (1) of regulation 8 of the principal regulations shall be substituted as follows:

”8. Eligibility criteria.- (1) For the purpose of grant of a certificate of registration, an applicant satisfying the following eligibility criteria may submit its application for grant of certificate of registration:-”

XII. Clause (a) of sub-regulation (1) of regulation 8 of the principal regulations shall be substituted as follows:

”(a) the applicant shall be registered with the Securities and Exchange Board of Indiaas a custodian of securities for the past five years, as on the date of application”

XIII. Clause (b) of sub-regulation (1) of regulation 8 of the principal regulations shall be substituted as follows:

”(b) direct or indirect cross holding by any pension fund or its sponsor, trustee bank or central record keeping agency in the custodian of securities shall be less than twenty per cent.”

Provided that in the same group where the sponsor of a pension fund or central record keeping agency or their associates, are holding twenty per cent. or more of the voting rights of the share capital of a custodian, it can apply to become custodian with the Authority under the following conditions:

(i) the sponsor, associates or the holding company, as the case may be, have net worth of at least rupees fifty thousand crore at all times;

(ii) majority of the directors of the custodian shall be those who do not represent the interests of the sponsor or its associates;

(iii) neither the custodian nor the pension fund shall be a subsidiary of each other;

(iv) no person shall be a director of both the custodian and the pension fund; and

(v) the custodian and the pension fund shall sign an undertaking that they will act independently of each other in their dealings with the schemes.

Explanation:- For the purpose of this proviso the expression ”holding comp any‖ shall have the meaning as provided in section 2(46) of the Companies Act, 2013 (Act No18 of 2013).”

XIV. Clause (c) of sub-regulation (1) of regulation 8 of the principal regulations shall be substituted as follows:

”(c) the applicant‘s holding of assets under custody shall be as defined under the selection process;”

XV. New clause (d) shall be inserted immediately after clause (c), in sub-regulation (1) of regulation 8 of the principal regulations as follows:

”(d) any other criteria or condition(s) as may be laid down under the selection process.”

XVI. In sub-regulation (2) of regulation 8 of the principal regulations, the heading of the sub-regulation shall be substituted as follows:

”(2) For the purpose of grant of a certificate of registration the Authority shall take into account any or all matters which are relevant to the activities of a custodian of securities, having regard to the pension schemes covered under the Act, but not limited to the following namely-”

XVII. Clause (b) of sub-regulation (2) of regulation 8 of the principal regulations shall be substituted as follows:

”(b) the applicant has the ability to segregate activities of the pension schemes covered under the Act, from its other custodial clients and maintain firewall in respect of its distinct activities;”

XVIII. Clause (c) of sub-regulation (2) of regulation 8 of the principal regulations shall be substituted as follows:

”(c) the applicant has the requisite approvals under any applicable law in force in connection with providing custodial services in respect of permissible securities under the pension schemes covered under the Act;”

XIX. Clause (d) of sub-regulation (2) of regulation 8 of the principal regulations shall be substituted as follows:

”(d) the applicant has in its employment adequate and competent persons who have the experience, capacity and ability of managing the activity of the custodian of securities;”

XX. Clause (e) of sub-regulation (2) of regulation 8 of the principal regulations shall be substituted as follows:

”(e) the applicant has prepared a complete manual, setting out the systems and procedures to be followed by it for the effective and efficient discharge of its functions and arm‘s length relationship to be maintained with its other activities;”

XXI. Clause (f) of sub-regulation (2) of regulation 8 of the principal regulations shall be deleted;

XXII. Clause (g) of sub-regulation (2) of regulation 8 of the principal regulations shall be deleted;

XXIII. Clause (h) of sub-regulation (2) of regulation 8 of the principal regulations shall be substituted as follows:

”(h) the applicant and its principal officer(s)is a ‗fit and proper person‘, as specified in the Third Schedule.

Explanation: principal officer‘ for this purpose shall mean applicant‘s key managerial personnel as defined under section 2(51) of the Companies Act, 2013; and”

XXIV. Sub-regulation (3) of regulation 8 of the principal regulations shall be deleted;

XXV. Regulation 9 of the principal regulations shall be substituted as follows:

”9. Exemptions in certain cases from eligibility criteria.- (1) An applicant shall fulfil the eligibility criteria specified in regulation 8.

(2) If an applicant does not fulfil any criteria specified in sub-regulation (2) of regulation 8, it may, request the Authority, by making an application seeking exemption from such criteria.

(3) Nothing contained in sub-regulation (2), shall confer the applicant any right to be granted any exemption.

(4) In the opinion of the Authority, if the non-fulfilment of the conditions under sub-regulation (2) of regulation 8, of which relaxation is sought may not prejudicially affect the interest of the subscriber(s), it may grant exemption for reasons to be recorded in writing. The Authority may in such circumstances provide a conditional registration and impose such additional conditions as it may deem fit for the grant of certificate of registration;”

XXVI. Regulation 10 of the principal regulations shall be substituted as follows:

”10. Procedure for grant of certificate of registration and payment of registration fee. – (1) An application’ received in response to the Authority‘s invitation under regulation 4, shall be evaluated in accordance with these regulations, and under such selection process as may be determined at the time of inviting applications.

(2) The best value proposal evaluated during the selection process shall be offered to act as custodian of securities for the pension schemes covered under the Act.

(3) Upon acceptance of the offer under sub-regulation (2), the applicant shall deposit the registration fee along with applicable taxes and levies thereon as specified in Second Schedule.

(4) Upon acceptance of the registration fee along with applicable taxes and levies thereon from the applicant, the Authority may, subject to such terms and conditions as it may specify, grant a certificate of registration in the format specified in First Schedule.

(5) No existing custodian of securities shall be entitled to claim any priority or privilege for grant of certificate of registration under the selection process.

(6) Where the existing custodian of securities fails to make an application for new registration or its application has been refused under these regulations, the existing custodian of securities shall: –

(a) transfer the assets, records, documents or information that are in its control to another custodian of securities, as directed by the Authority, at its own cost; and

(b) be subject to the direction of the Authority till all such transfers or actions are completed.”

XXVII. Regulation 11 of the principal regulations shall be substituted as follows:

”11. Terms and conditions of certificate of registration.- The certificate of registration granted to the applicant or the custodian of securities shall be subject to the following conditions, namely.-

(a) it shall pay the annual fee along with applicable taxes and levies thereon as specified in these regulations;

(b) it shall provide custodial and depository services related to all securities, permitted to be held by the custodian of securities under the pension schemes covered under the Act;

For this purpose, it shall submit a certificate evidencing compliance with the eligibility conditions to the Authority on annual basis. within thirty days of closure of accounts for the financial year or such period as determined by the Authority.

(d) all representations, warranties, information, disclosures, reports, documents and statements submitted are true, complete, accurate and correct in all respects and do not contain any incorrect statement or omits to disclose any material fact and shall inform the Authority of any material change in the information or particulars previously furnished, which have a bearing on its registration;

(e) it has taken all necessary actions and steps to accept the registration as custodian of securities and binds itself for the due performance of its obligations and shall discharge its obligations as per the provisions of the regulations and requirements under the selection process;

(f) it executes such agreements with the parties as directed by the Authority or as specified under these regulations and shall comply with the terms of the agreements so executed;

(g) it shall maintain confidentiality with respect to all transactions, records, data and information received while discharging its obligations and shall not, without the prior permission of the Authority, produce or share such data or information as evidence or for any other purpose except as required under the process of law;

(h) it shall comply with the provisions of the Act, rules, regulations, guidelines, circulars, directions and other instructions issued by the Authority;

(i) it shall submit statements to the Authority or the National Pension System Trust or to such other intermediaries at such intervals as may be determined by the Authority or the National Pension System Trust or as provided in the agreements executed;

(j) it shall comply with the code of conduct ‘as specified in the Fourth Schedule, and it shall not assign or delegate or outsource any part of its functions as a custodian of securities to any other entity without the prior permission of the Authority; and

k) the applicant, its principal officers and compliance officer shall be compliant of the fit and proper person ‘criteria as specified in Third Schedule.”

XXVIII. Sub-regulation (2) of regulation 12 of the principal regulations shall be substituted as follows:

”(2) the custodian of securities shall further obtain necessary approvals from other sectoral regulators or any other authorities and it shall comply with the requirements of the intermediaries, depositories, clearing houses, exchanges with regard to opening of accounts, authorizing signatories, obtaining digital signatures, providing connectivity and software installation.”

XXIX. Regulation 13 of the principal regulations shall be substituted as follows:

”13. Commencement of business.- (1) Upon completion of documentation by the custodian of securities and other related formalities for undertaking its operations for which it has been granted registration, the custodian of securities shall seek issuance of ―certificate of commencement of business from the Authority.

(2) The Authority upon being satisfied that the custodian of securities is fully equipped to commence its operations may issue a ―certificate of commencement of business as specified in the First Schedule, after which the custodian of securities can undertake the operations and activities envisaged.”

XXX. Regulation 14 of the principal regulations shall be substituted as follows:

”14. Period of validity.- (1) A certificate of registration granted under these regulations shall be valid for a period of five years from the date of grant of certificate of registration.

(2) The Authority may, however extend the tenure of the certificate of registration, for such period as it may determine in the interest of the subscribers. Such extension shall be granted for reasons to be recorded in writing. Any extension granted to the custodian of securities upon expiry of tenure of registration shall be binding on the custodian of securities and it shall discharge its functions in accordance with the terms and conditions of the certificate of registration.

(3) During the validity of certificate of registration under sub-regulations (1) and (2), the certificate of registration granted to the custodian of securities shall be reviewed annually or any other period and its continuity shall be decided thereupon by the Authority.

(4) The custodian of securities shall deposit the annual fee along with applicable taxes and levies thereon, as specified under Second Schedule, on pro rata basis for the extended period of registration.

XXXI. Regulation 15 of the principal regulations shall be deleted;

XXXII. Sub-regulation (1) of regulation 16 of the principal regulations shall be substituted as follows:

”16. Asset servicing charges.- (1) The asset servicing charges that can be collected by the custodian of securities on the assets held under the pension schemes covered under the Act shall be determined as per the selection process.

(2) The asset servicing charges shall be calculated on the basis of daily closing balance of assets held by the custodian of securities under the pension schemes covered under the Act on face value of debt instruments and on purchase price of equity instruments.”

XXXIII. Regulation 17 of the principal regulations shall be substituted as follows:

”17. Annual fee.- A Custodian of securities shall deposit with the Authority annual fee along with applicable taxes and levies thereon, as specified in Second Schedule before the 15th of April each year or within fifteen days of the issuance or extension of certificate of registration.”

XXXIV. Regulation 18 of the principal regulations shall be deleted;

XXXV. Sub-regulation (1) of regulation 19 of the principal regulations shall be substituted as follows:

19. General obligations of custodian of securities.- (1) The custodian of securities shall exercise at all times reasonable care, prudence, professional skill and diligence while discharging its duties and responsibilities in the best interest of the subscribers.”

XXXVI. Sub-regulation (3) of regulation 19 of the principal regulations shall be substituted as follows:

”(3) The custodian of securities shall take all necessary precautions to ensure the continuity of records including back up of the same.‖

XXXVII. Sub-regulation (4) of regulation 19 of the principal regulations shall be substituted as follows:

”(4) The custodian of securities shall ensure at all times that transactions in the pension schemes accounts are put through according to the instructions of the pension fund or the National Pension System Trust and the securities held in such accounts are used only for transactions explicitly authorized by the pension fund or the National Pension System Trust. The custodian of securities shall inform the issuer of securities in a timely manner, the exemption from taxes that are available to National Pension System Trust;”

XXXVIII. Sub-regulation (13) of regulation 19 of the principal regulations shall be substituted as follows:

”(13) The custodian of securities shall not encumber the securities in any manner including by an act of pledging, hypothecating or creating any charge or lien on the said securities except in accordance with the guidelines issued by the Authority, and with the prior approval of the National Pension System Trust;”

XXXIX. New sub-regulation (18) regulation shall be inserted immediately after sub-regulation (17) in regulation 19 of the principal regulations as follows:

”(18) The custodian of securities shall adhere to the voting policy and cyber security policy issued by the Authority for the purpose.”

XL. New sub-regulation (19) shall be inserted immediately after newly inserted sub-regulation (18) in Regulation 19 of the principal regulations as follows:

”(19) Take all measures necessary for prevention of fraud and develop and implement a fraud prevention and mitigation policy in accordance with the guidelines issued by the Authority, including: –

(i) laying down internal controls to be followed and ensure that such controls are adequate and operating effectively; and

(ii) making provision for indemnifying the subscriber for any loss on account of fraud or negligence on the part of custodian, which has been established.

XLI. Sub-regulation (1) of regulation 20 of the principal regulations shall be substituted as follows:

”20. Monitoring, review and evaluating systems and controls.- (1) A custodian of securities shall have adequate mechanisms for the purposes of reviewing, monitoring and evaluating the custodian‘s controls, systems, procedures and safeguards.‖

XLII. Sub-regulation (1) of regulation 21 of the principal regulations shall be substituted as follows:

”21. Appointment of compliance officer.- (1) A custodian of securities shall appoint a compliance officer who shall be responsible for monitoring the compliance of provisions of the Act, rules, regulations, guidelines, circulars, directions and other instructions, issued by the Authority or any instructions from National Pension System Trust or the Central Government.”

XLIII. Regulation 22 of the principal regulations shall be substituted as follows:

”22. Inspection and audit.- (1) The Authority shall inspect the custodian of securities at regular intervals as it deems fit.

Notwithstanding the above, it may at any time as it deems fit, undertake directly or through its authorized representative, or appoint an auditor, conduct an inspection or audit of the books of accounts, records including the call records and electronic records and documents of the custodian of securities for the purposes as specified under this regulation.

(2) The purposes referred to in sub-regulation (1) may include,-

(a) ascertaining the infrastructural capabilities, systems and procedures;

(b) ensuring that the books of account, records including call records, electronic records and documents are being maintained in the manner required under these regulations;

(c) ensuring that the affairs of the custodian of securities, in relation to the activities entrusted with, are conducted in a manner which is in the interest of the subscriber;

(d) ascertaining whether the provisions of the Act, rules, regulations, guidelines, circulars, directions and instructions issued by the Authority are being complied with;

(e) inquiring into the complaints received from subscriber(s), intermediaries or any other person on any matter having a bearing on the activities of the custodian of securities; or

(f) inquiring suo motu into such matters as may be deemed fit in the interest of subscribers.

(3) The Authority may appoint one or more authorized representatives or, appoint a qualified auditor to undertake the inspection or audit referred to in sub-regulation (1).

Explanation.- For the purpose of this sub-regulation the expression ―qualified auditor‖ shall have the meaning derived from section 141 of the Companies Act, 2013 (18 of 2013).”

XLIV. Regulation 23 of the principal regulations shall be substituted as follows:

“23. Notice before inspection or audit.- (1) Before undertaking an inspection or audit under regulation 22, the Authority or its authorized representative or the auditor shall give ten working days‘ notice to the custodian of securities:

Provided that no notice shall be required if the Authority is satisfied that an inspection or audit is for immediate safeguarding of the interest of the subscribers.

(2) During the course of an inspection or audit, the custodian of securities, of which the inspection or audit is being carried out shall be bound to discharge its obligations as specified in these regulations.”

XLV. Regulation 24 of the principal regulations shall be substituted as follows:

”24. Obligations on inspect and audit.- (1) The custodian of securities, which is being inspected or audited, and every director, officer and employee thereof, shall produce to the Authority, or its authorized representative or auditor, such books, accounts, records and other documents in its custody or control and furnish such statements and information, within such time as may be provided.

(2) The custodian of securities shall allow the Authority or its authorized representative or the auditor to have a reasonable access to the premises occupied by it or by any other person on its behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the custodian of securities or any other person and also provide copies of documents or other materials which in the opinion of the Authority or its authorized representative or auditor are relevant for the purpose of the inspection or audit.

(3) The custodian of securities shall give to the Authority or the National Pension System Trust, or its authorized representative or auditor all assistance in connection with the inspection and audit which may reasonably be required in connection with the inspection or audit.‖

XLVI. New sub-regulation (3) shall be inserted immediately after sub-regulation (2) in regulation 25 of the principal regulations as follows:

”(3) The report submitted by the authorized person or any documents or information so collected by such person during the course of inspection or audit, would be admissible in any investigation or inquiry or any other proceedings before the Authority.”

XLVII. Regulation 27 of the principal regulations shall be substituted as follows:

”27. Inspection and audit by National Pension System Trust. – (1) The National Pension System Trust shall undertake directly or through its authorized representative, inspection or audit or both of the custodian of securities, on an annual basis or at such other period as may be determined by the Authority in relation to operational agreements executed and in accordance with the provisions of Pension Fund Regulatory and Development Authority (National Pension System Trust) Regulations, 2015.

(2) The custodian of securities shall allow the National Pension System Trust, or its authorized representative to have a reasonable access to the premises occupied by it, books of accounts, records, technology infrastructure, and provide necessary information as may be required by it for the purpose of such inspection or audit, as the case may be.

(3) The National Pension System Trust shall be entitled to recover from the custodian of securities such expenses incurred by it for the purposes of inspection or audit undertaken directly or through its authorized representative.

(4) The scope of audit or inspection may be determined by the Authority.”

XLVIII. In sub-regulation (1) of regulation 28 of the principal regulations, the heading of the sub-regulation shall be substituted as follows:

”28. Cancellation or suspension of certificate of registration.- (1) The registration granted by the Authority to act as a custodian of securities is liable to be cancelled or suspended, if the-”

XLIX. Sub-regulation (2) of regulation 28 of the principal regulations shall be substituted as follows:

”(2) The Authority may without prejudice to the powers under sub-regulation (1), instead of cancelling or suspending the certificate of registration, direct for varying or modifying the terms and conditions of the certificate of registration as it may deem fit, or pass any other order, as may be deemed beneficial in the interest of the subscribers, for reasons to be recorded in writing.‖

L. Sub-regulation (3) of regulation 28 of the principal regulations shall be deleted;

LI. Sub-regulation (1) of Regulation 30 of the principal regulations, shall be substituted as follows:

”30. Effect of suspension or cancellation of certificate of registration. – (1) A custodian of securities which has not applied for registration or which has failed to obtain a certificate of registration afresh upon expiry of tenure of certificate of registration, or certificate of registration of which has been cancelled or suspended by the Authority shall, on and from the date determined by the Authority, cease to carry on any activity as custodian of securities.‖

LII. In sub-regulation (2) of regulation 30 of the principal regulations, the heading of the sub-regulation shall be substituted as follows:

”(2) On and from the date of suspension or cancellation of certificate of registration, the custodian of securities shall-‖

LIII. Clause (e) of regulation 34 of the principal regulations shall be deleted;

LIV. Clause (f) of regulation 34 of the principal regulations shall be substituted as follows:

”(f) warning the noticee; or”

LV. New clause (g) shall be inserted immediately after clause(f) in regulation 34 of the principal regulations as follows:

”(g) imposition of any other condition, restrictions or compliances as may be deemed necessary upon the noticee or its principal officer or other officers or any other person concerned with it.”

LVI. In First Schedule (certificate for commencement of business) of the principal regulations, the words “certificate for commencement of business” wherever appearing, shall be substituted with “certificate of commencement of business”;

LVII. Second Schedule (Fee payable under the regulations) of the principal regulations shall be substituted as follows:

“SECOND SCHEDULE

PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY (CUSTODIAN OF SECURITIES)
REGULATIONS, 2015

[See regulations 4(2), 10 (3), 11(a), 14(4), and 17]
FEES PAYABLE UNDER THE REGULATIONS
PART A
AMOUNT TO BE PAID AS FEES

S. No.	Type of fee	Amount	Nature and calculation	Time of payment
1.	Application Fee	Rs 5,00,000 (Rupees five lakh) along with applicable taxes and levies thereon	Non-Refundable Flat Rate	At the time of submission of application for grant of Certificate of Registration
2.	Registration fee	Rs 25,00,000 (Rupees twenty five lakh) along with applicable taxes and levies thereon	Non-Refundable Flat Rate	At the time of grant of registration certificate for the tenor of appointment
3.	Annual fee	0.0005% of Assets under custody or Rs 10,00,000 (Rupees ten lakh) whichever is higher, along with applicable taxes and levies thereon.	Non-Refundable Assets under custody shall be considered as on 31st March of preceding financial year.	Payable by 15th of April of every financial year or within fifteen days of grant of certificate of registration.

PART B

For the purpose of this Part,-

I. The fees specified above shall be payable by demand draft or bankers cheque in favour of ―The Pension Fund Regulatory and Development Authority‖at New Delhi or through electronic transfer in the designated bank account of PFRDA.

II. The expression ―assets under custody shall mean the value of the assets calculated on face value of debt instruments and of purchase value of equity instruments held by the custodian of securities as disclosed by it. The payment of annual fee with applicable taxes and levies thereon shall be accompanied by a statement of assets under custody which shall be in such format as may be determined by the Authority and shall be certified to be true and complete by the functional head of the custody services of the custodian of securities.

III. It is clarified that no registration fee or application fee (as shown against item 2 above) shall be payable in case of extension of the Certificate of registration. A custodian of securities shall pay pro rata annual fee on quarterly basis, if the extension of certificate of registration is granted ± Ref Regulation 14 (4).

IV. The Authority reserves the right to amend all or any of the fees from time to time.”

LVIII. Third Schedule of the principal regulations pertaining to fit and proper person‟ criteria shall be substituted as follows:

”THIRD SCHEDULE
PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY
(CUSTODIAN OF SECURITIES) REGULATIONS, 2015
[See regulation 8(2)(h) and 11(k)]

Criteria for determining a fit and proper person’

For determining whether any person is a ‘fit and proper person’, the Authority may take into account any factors as it deems fit, including but not limited to the following criteria:

PART A

(a) financial integrity;

(b) absence of convictions or civil liabilities;

(d) good reputation and character;

(e) efficiency and honesty; and

(f) financial solvency and net worth.

PART B

A person shall not be considered as a “fit and proper person” if any of the following disqualifications are incurred:-

(1) criminal complaint or information under section 154 of the Code of Criminal Procedure, 1973 (2 of 1974) has been filed against such person by the Authority and which is pending;

(2) charge sheet has been filed against such person by any enforcement agency in matters concerning economic offences and is pending;

(3) an order of restraint, prohibition or debarment has been passed against such person by the Authority, or any financial regulator or enforcement agency in any matter concerning securities laws or financial markets or insurance law and a period of three years from the date of expiry of period specified in the order has not elapsed;

(4) license or registration has been cancelled by any financial sector regulator(s) during last five years;

(5) recovery proceedings have been initiated by the Authority against such person and are pending;

(6) an order of conviction has been passed against such person by a court for any offence involving moral turpitude or involving economic offences or fraud;

(7) any winding up proceedings have been initiated or an order for winding up has been passed against such person;

(8) any insolvency proceedings is pending against such person or where he has been declared insolvent and not discharged;

(9) such person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;

(10) such person has been categorized as a willful defaulter;

(11) such person has been declared a fugitive economic offender;

(12) there is an order or notice of any action or investigation or other proceedings of any nature whatsoever, against the person by any governmental or statutory authority which would restrain, prohibit or otherwise challenge or impede the performance of obligations and that there is adverse proceedings against it from any financial sector regulator(s) including the Reserve Bank of India, Insurance Regulatory and Development Authority of India or the Securities and Exchange Board of India, of a nature that could adversely affect the ability to provide the services as custodian for the assets regulated by the Authority; or

(13) any other disqualification as may be determined by the Authority;‖ LIX. In Fourth Schedule (Code of Conduct) of the principal regulations,

a. the symbols, words and numerals, “See regulation 11(j) and 18” shall be substituted with “See regulation 11(j)”; and

b. the words “key management personnel” in clause 1.2 shall be substituted with “key managerial personnel”.

Dr. DEEPAK MOHANTY, Chairperson

[ADVT.-III/4/Exty./761/2023-24]

Note: The Pension Fund Regulatory and Development Authority (Custodian of Securities) Regulations, 2015 were published vide Notification No. PFRDA/12/RGL/139/10, on the 14th May, 2015 in the Gazette of India, Extraordinary, Part III, Section 4, No. 160, and were subsequently amended by the Pension Fund Regulatory and Development Authority (Custodian of Securities) (Amendment) Regulations, 2021 published vide Notification No. PFRDA/12/RGL/139/10, on the 22nd September, 2021 in the Gazette of India, Extraordinary, Part III, Section 4, No. 404.