Draft Robust Risk Management Framework for CRAs in NPS Architecture

Introduction: Central Recordkeeping Agencies (CRAs) under the National Pension System (NPS) architecture play a crucial role in managing, recording, and safeguarding information related to subscribers. This article delves into the proposed Risk Management Framework for CRAs, aiming to ensure the integrity and security of the NPS ecosystem.

Detailed Analysis: Regulatory Landscape: The regulatory framework, as defined in the PFRDA Act and CRA Regulations, mandates CRAs to establish robust internal control systems. Regulation 26(2)(c) specifically emphasizes the need for periodic inspections to assess the adequacy of these systems.

Importance of CRAs: CRAs serve as the backbone of the NPS architecture, facilitating the seamless flow and storage of information among various stakeholders. Any disruption in their services poses a significant risk to the entire NPS system, emphasizing the critical need for a comprehensive risk management approach.

Risk Management Framework: The proposed Risk Management Framework by PFRDA aims to guide CRAs in ensuring high standards of service, diligence, and protection of subscriber interests. The framework encompasses governance, risk appetite, and key elements of the risk management process.

Stakeholder Consultation: To ensure inclusivity, PFRDA invites feedback from stakeholders, including CRAs. The draft proposal is open for public comments until 1st Jan 2024. This collaborative approach reflects the regulatory body’s commitment to incorporating diverse perspectives.

Conclusion: In conclusion, the Risk Management Framework for CRAs is a proactive measure to address potential risks associated with their operations. The emphasis on governance, cyber resilience, and stakeholder involvement highlights the commitment to maintaining the integrity and security of the NPS ecosystem. Stakeholders are encouraged to actively participate in the consultation process to contribute to the effectiveness of the framework. The deadline for providing feedback is set for 1st Jan 2024, indicating the urgency and importance attached to this risk management initiative. The collaborative efforts between regulatory bodies and stakeholders are essential for building a resilient and secure foundation for the NPS architecture.

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PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY

Draft Risk Management Framework for the Central Recordkeeping Agencies (CRAs) under NPS architecture

Central Recordkeeping Agencies (“CRA”) are registered with PFRDA under Section 27 of the PFRDA Act, 2013 (“PFRDA Act”) and more particularly under the PFRDA (Central Recordkeeping Agency) Regulations, 2015, (“CRA Regulations”) and amendments thereof. As defined in Section 2(1)(b) of the PFRDA Act, “Central Recordkeeping Agency” means an agency registered under section 27 to perform the functions of recordkeeping, accounting, administration and customer service for subscribers to schemes.

Regulation 26(2)(c) of CRA Regulations, states that the purpose referred in sub-regulation (1) i.e. inspection and audit by the Authority may include “to ascertain whether adequate internal control systems, procedures and safeguards have been established and are being followed by the central recordkeeping agency”. The CRAs play an important and pivotal role in the entire NPS architecture as the entire information movement and storage among the various participants in the NPS architecture is routed through them and any disruption in services or any issues concerning the integrity of the system, puts the entire NPS architecture at risk.

In order to ensure that the CRAs render, at all times, high standards of service, exercise due diligence, ensure proper care in their operations and protect the interests of subscribers in terms of Section 14 (2) (e) of the PFRDA Act, 2013, PFRDA has broadly laid down, the following Risk Management Framework, for guidance of the CRAs and to be suitably developed and followed by them. This shall be done within a period of 60 days and shall be submitted to the Authority, after the framework is duly approved by the board of CRA. The policy shall be reviewed periodically by board of PFRDA.

Risk Management Framework for CRAs provides guidance on the approach to managing risk in NPS ecosystem so that the various risks associated with the functioning of CRAs does not result in any deficiencies in service to customers, disruption or any issues effecting the integrity of recordkeeping, accounting, administration functions of the CRAs. The Risk Management Framework is a description of the Authority’s expectations with respect to risk management governance, the organization’s risk appetite and key elements of its risk management process. Risk Management Framework shall encompass all the registered CRAs, their employees, agents and to all risks that the CRA systems and their administration is/ may be exposed to.

All stakeholders, including CRAs are requested to provide their feedback/suggestions/inputs on the draft proposal on “Risk Management Framework for Central Recordkeeping Agencies (CRAs)” placed as Annexure-I, which is open for stakeholder consultation and public comments till 1^st Jan 2024. The draft proposal can be accessed on PFRDA website (www.pfrda.org.in) at Exposure Draft Section under Regulatory framework Menu. Further, this document does not reflect the views of the Authority.

Feedback/inputs on the matter may be provided in the following format:

Name of the person/entity proposing comments
Contact details (Email & Mobile no.)
Category (intermediary/public)
Item no	Head and clause number under the proposed RMF	Short description	Feedback/Suggestion	Justification/rationale for the suggestion

Comments/feedback may be sent by email at [email protected] with the subject line Feedback on proposed Risk Management Framework for CRAs under PFRDA (Central Recordkeeping Agency) Regulations, 2015. The said PFRDA (Central Recordkeeping Agency) Regulations, 2015 are available on our website (www.pfrda.org.in) and can be referred, if needed.

Chief General Manager
CRA-Supervision

Date of Issuance: 11^th Dec 2023

Last date to submit the feedback/inputs: 1^st Jan 2024

Annexure- I

DRAFT RISK MANAGEMENT FRAMEWORK FOR CRAs

For the purposes of this risk management framework, the following definitions shall apply:

1. ‘Cyber risk’ includes any reasonably identifiable circumstance in relation to the use of network and information systems, – including a malfunction, capacity overrun, failure, disruption, impairment, misuse, loss or other type of malicious or non-malicious event – which, if materialised, may compromise the security of the network and information systems, of any technology-dependant tool or process, of the operation and process’ running, or of the provision of services, thereby compromising the integrity or availability of data, software or any other component of ICT services and infrastructures, or causing a breach of confidentiality, a damage to physical ICT infrastructure or other adverse effects;

2. ‘Cyber incident’ includes an unforeseen identified occurrence in the network and information systems, whether resulting from malicious activity or not, which compromises the security of network and information systems, of the information that such systems process, stores or transmits, or has adverse effects on the availability, confidentiality, continuity or authenticity of financial services provided by the CRA;

3. ‘Cyber-attack’ means a malicious cyber incident by means of an attempt to destroy, expose, alter, disable, steal or gain unauthorized access to or make unauthorized use of an asset perpetrated by any threat actor;

4. ‘Digital operational resilience’ means the ability of a CRA to build, assure and review its operational integrity from a technological perspective by ensuring, either directly or indirectly, through the use of Information and communication technology (ICT) to address the security of the network and information systems which a CRA makes use of, and which supports the continued provision of CRA services and their quality;

5. ‘Information and communication technology (ICT)’ risk means the current or prospective risk of losses due to the inappropriateness or failure of the hardware and software of technical infrastructures, which may compromise the availability, integrity, accessibility and security of such infrastructures and of data.

6. ‘Vulnerability’ means a weakness, susceptibility or flaw of an asset, system, process or control that can be exploited by a threat;

Framework and Applicability

The Risk Management Framework shall be applicable and be implemented by all registered Central Recordkeeping Agencies (CRAs) registered with the Authority.

Risk Management Framework for CRAs is an approach to managing risks associated with the functioning of CRAs and such that the operations do not result in any deficiencies in service to customers, prevention of fraud, disruption, or any issues effecting the integrity of recordkeeping, accounting, administration functions of the CRAs.

As part of the overall risk management framework, a CRA shall adopt best governance practices for risk management in the discharge of its functions and shall constitute a Risk Management Committee for better management of risks emanating from the operations being carried out. The Board of CRA shall constitute such a committee preferably with internal and external specialists who have knowledge of recordkeeping functions or IT systems or audit and accounting or any other related field. The Risk Management Committee shall draw up a Risk Management Policy and place the same before its Board for its approval.

CRAs may be exposed to various kinds of risk wherein the possibility of an event occurring and adversely affecting the desired objective is present. For the purpose of understanding, the Risks can be categorized at a broad level as below, based on probability of occurrence and its impact.

a. Operational Risk – The risk of losses due to inadequate or failed internal processes, people and systems or from external events. This includes Cyber risk and threat of Cyber-attacks.

b. Fraud Risk – Intentional act committed to secure an unfair or unlawful gain and causing a financial loss to CRA, subscribers or any other stakeholder.

c. Legal Risk – Risk of not having sufficient basis for legal recourse in the event of a dispute or f litigation filed by or against the company.

CRAs shall be responsible for the acts or omissions of its employees and agents in respect of the conduct of its business including for any loss that may be caused to subscribers by the wrongful act, negligence, fraud or default of the CRA or the vendors of CRA to whom the work has been outsourced by CRA or by an employee of the CRA. Also, CRA will be responsible for any loss or damage caused to subscribers or the stakeholder arising out of any deficiencies in design and implementation of the IT systems and which are reasonably not expected from a professional recordkeeping agency.

Accordingly, the Risk Management Policy of a CRA shall address the way it proposes to deal with all the above-mentioned risks.

Objective of the Risk Management Framework

i. Manage risk in a consistent manner across the organisational set up of the CRA.

ii. A strong risk culture: managing risk shall be part of regular work of the CRA.

iii. CRAs are aware of the risks they are exposed to and accordingly, are capable of identifying most material risks to their functioning and put in place an appropriate risk mitigation and avoidance policy.

iv. CRAs to have sufficient controls in place to ensure that they only take the right type and amount of risk to grow their business safely and securely.

v. Deliver fair outcomes for subscribers, maintain an orderly and transparent operation of services of the CRA to subscribers and all other stakeholders.

RISK MANAGEMENT FRAMEWORK:

The risk management framework to be put in place by the CRAs shall take guidance from the below mentioned aspects in the design, development, implementation, maintenance of the CRA systems and in discharge of functions assigned to them under the PFRDA (Central Recordkeeping Agency) Regulations, 2015, and amendments thereof:

i. As part of the CRA operations and management, CRAs shall formulate a comprehensive Risk Management Framework through its Risk Management Committee (RMC) encompassing the guidance provided hereunder. Such policy shall be placed before the Board of the CRA for approval and post approval of the Board, the same shall be implemented in both letter and spirit. The Board of the CRA should review such policy document at least once in a financial year with the objective of strengthening and improving the risk appetite and risk management of the CRA in all its endeavours including cyber security and cyber resilience.

ii. The RMC while drafting the said framework should also consider the relevant and appropriate principles which are laid down by National Critical Information Infrastructure Protection Centre (NCIIPC) of National Technical Research Organisation (NTRO), the nodal agency under Section 70 A(1) of the Information Technology (Amendment) Act, 2008, in the report titled ‘Guidelines for Protection of National Critical Information Infrastructure’ and subsequent revisions, if any, from time to time. Further, the CRAs shall incorporate the material implications from the Digital Personal Data Protection Act, 2023, in the referred Risk Management Framework in order to protect and secure personal data of subscribers as is envisaged under the said Act.

iii. RMC shall also document and implement the learnings from previous instances of frauds/prevented frauds to ensure that similar incidents do not occur again.

iv. The Risk Management Framework (RMF) referred above shall provide for a set of standards and principles comprising of the following:

A. Governance and organisation

B. Operational Risk Management

C. Risk Assessment and Control

D. Fraud prevention controls

E. Supplementary Risk Mitigation Measures

F. Quality policy

G. Any other measure which aids the Risk management process. The itemised details of the above are as below:

A. Governance and organisation.

1. The management of CRA shall define, approve, oversee and be accountable for the implementation of the risk management framework. For the purposes of corporate governance of the CRA and managing the risks in an orderly manner, the management shall:

a. bear the final responsibility for managing all the risks associated with design, development and operations of CRA systems including Information and Communication Technology (ICT) risks;

b. set clear roles, responsibilities and accountability for all activities which form integral part of the CRA functions;

c. determine the appropriate risk tolerance level of each risk of the CRA;

d. approve, oversee and periodically review the implementation of the CRA’s overall risk management policy including Cyber security policy, Business Continuity Policy and Disaster Recovery Plan;

e. approve and periodically review the audit plans associated with implementation of risk management policy approved by the Board, audits and material modifications thereto;

f. allocate and periodically review appropriate budget to fulfil the CRAs digital operational resilience needs in respect of all types of resources, including training on ICT risks and skills for all relevant staff;

g. approve and periodically review the CRAs policy on arrangements regarding the use of ICT services provided by ICT third-party service providers;

h. be duly informed about cyber incidents and their impact and about response, recovery and corrective measures;

i. As an additional risk mitigating measure and proactive approach, management shall identify potential fraud and risk areas, and develop and put in place Red Alerts (explained later) that shall be created for identified risks and scenarios;

j. Identify potential risk events that may affect the business objective and lead to financial loss either to the CRA or to the subscribers;

k. A control mechanism is designed and is implemented to enhance risk management and increase the likelihood of the process being error free.

2. From the governance standpoint, Board level supervision shall regularly examine the working of the Risk Management Committee, an audit committee and any other committee as deemed fit for the purpose of effective design, development and implementation of risk management policy of the CRA.

3. The management of the CRA shall put in place adequate mechanism and controls to ensure that the integrity of the automatic data processing systems is maintained at all times and take all precautions necessary to ensure that the records are not lost, destroyed or tampered with and in the event of loss or destruction, ensure that sufficient back up of records is available at all times at a different place.

B. Operational Risk Management Policy

1. CRAs shall have a sound, comprehensive and well-documented operational risk management policy, which enables them to address any risk arising thereon quickly, efficiently and comprehensively and to ensure a high level of digital operational resilience that matches their business needs, size and complexity. As part of the policy, CRA shall put in place detailed operation manual(s) covering all aspects of its functioning, including the interface and method of transmission of information between the subscribers, nodal offices, POPs, PFs and all other stakeholders involved in receipt and processing of information related to NPS and other pension schemes.

2. The risk management policy shall include strategies, policies, procedures, ICT protocols and tools which are necessary to duly and effectively protect: (a)all relevant physical components and infrastructures including computer hardware, servers, as well as all relevant premises, data centres and sensitive designated areas, (b)protect the systems from cyber related risks and threats, and (c) regular upgradation of the IT systems and software, to ensure that the CRA systems are adequately protected from risks including damage and unauthorized access or usage.

3. CRAs shall minimise the impact of various risks identified by it by deploying appropriate strategies, policies, procedures, protocols and tools as determined in the risk management policy.

4. As part of the risk management policy referred to in paragraph 1, CRAs shall implement an information security management system based on recognized international standards and shall regularly review it. For this purpose, the CRAs shall have a specific “Information Security” policy.

5. CRAs shall ensure appropriate segregation of management functions, control functions, and internal audit functions for a clear demarcation of responsibility and accountability of its functions.

6. The risk management policy referred to in paragraph 1 shall be documented and reviewed at least once a year, as well as upon the occurrence of cyber incidents, and following supervisory instructions or conclusions derived from relevant digital operational resilience testing or audit processes. It shall be continuously improved on the basis of lessons derived from implementation and monitoring.

7. The risk management policy referred to in paragraph 1 shall include provisions for auditing of the operations on a regular basis to ascertain the adherence to the policy by the CRA and by auditors possessing sufficient knowledge, skills and expertise in ICT and process management. Such audits shall be conducted at least once in a year and the reports thereon shall be placed before the board of the CRA.

8. A formal follow-up process, including rules for the timely verification and remediation of critical audit findings, shall be established, taking into consideration the conclusions from the audit review while having due regard to the nature, scale and complexity of the CRA services and activities.

9. The risk management policy referred to in paragraph 1 shall include a digital resilience strategy setting out how the framework is implemented. To that effect it shall include the methods to address ICT risk and attain specific objectives, by:

9. The risk management policy referred to in paragraph 1 shall include a digital resilience strategy setting out how the framework is implemented. To that effect it shall include the methods to address ICT risk and attain specific objectives, by:

a. explaining how the ICT risk management framework supports the CRA’s business strategy and objectives;

b. establishing the risk tolerance level for each of the identified risk, in accordance with the risk appetite of the CRA, and analysing the impact tolerance of disruptions, if any;

c. setting out clear information security objectives;

d. explaining the ICT reference architecture and any changes needed to reach specific business and compliance objectives;

e. outlining the different mechanisms put in place to detect, protect and prevent impacts of cyber incidents;

f. evidencing the number of reported cyber incidents and the effectiveness of preventive measures;

g. defining a holistic out sourced vendor strategy for ICT services at entity level showing key dependencies on third-party service providers and explaining the rationale behind the procurement of such third-party service providers in view of the risks that may emanate from such engagement;

h. Testing of the digital operational resilience of the CRA systems at regular intervals and at least once in every six months of a financial year;

i. outlining a communication strategy in case of cyber incidents.

10. The risk management policy referred to in paragraph 1 shall include obligation of CRAs for maintaining updated systems, protocols and tools in order to control or mitigate all and any potential risks and which fulfil the following conditions:

a. the systems and tools are appropriate to the nature, variety, complexity and magnitude of operations supporting the conduct of their activities;

b. they are reliable;

c. they have sufficient capacity to accurately process the data necessary for the performance of activities and the provision of services in time, and to deal with peak orders, message or transaction volumes, as needed, including in the case of introduction of new technology;

d. they are technologically resilient to adequately deal with additional information processing needs as required under stressed market conditions or other adverse situations.

e. The systems have been designed to minimise the risk of fraud or being mis­used by internal or external players.

f. Adequate firewalls are available.

C. Risk Assessment and Control

Broadly, the following steps shall be undertaken by the intermediary to arrive at proper risk assessment and controls and which form the bedrock of the risk management framework:

1. Risk assessment

• CRAs shall conduct risk assessments either by themselves or through external experts. Risk assessment so done should identify threats and vulnerabilities and should be sufficiently broad-based to encompass key internal and external factors, such as technology, physical and human factors, policies and third-party services with security implications.
• Risk assessment will allow determination of the acceptable level of risk and assist the selection of appropriate controls to manage the risk of potential harm to information systems and networks in light of the nature and importance of the information to be protected.
• Intermediary shall classify the ICT – Assets into critical, medium risk and normal risk based on the risks associated with such assets. Intermediary should identify critical assets based on their sensitivity and criticality for business operations, services and data management.
• CRAs should accordingly identify risks (threats and vulnerabilities) that it may face, along with the likelihood of such threats and impact on the business and thereby, deploy controls commensurate to the criticality.

2. Design and implementation

CRAs should incorporate security as an essential element of information systems and networks. Systems, networks and policies need to be properly designed, implemented and coordinated to optimise security. A major, but not exclusive, focus of this effort is the design and adoption of appropriate safeguards and solutions to avoid or limit potential harm from identified threats and vulnerabilities. Both technical and non-technical safeguards and solutions are required and should be proportionate to the value of the information on the organisation’s systems and networks. Security should be a fundamental element of all products, services, systems and networks, and an integral part of system design and architecture. For end users, security design and implementation consists largely of selecting and configuring products and services for their system. The CRA shall plan for all efforts to ‘Protect’ assets by deploying suitable controls, tools and measures.

In order to protect the assets from potential risks, policies with respect to the following shall be clearly laid down and adhered to by the CRA at all times:

• Access Controls
• Physical security
• Network Security Management
• Security of Data
• Hardening of Hardware and Software
• Application Security and Testing
• Patch Management
• Disposal of systems and storage devices
• Vulnerability Assessment and Penetration Testing (VAPT)

3. Security management

CRAs should adopt a comprehensive approach to security management. Security management should be based on risk assessment and should be dynamic, encompassing all levels of CRA’s activities and all aspects of their operations. It should include forward-looking responses to emerging threats and address prevention, detection and response to incidents, systems recovery, ongoing maintenance, review and audit. Information system and network security policies, practices, measures and procedures should be coordinated and integrated to create a coherent system of security. The requirements of security management depend upon the level of involvement, the role of the intermediary, the risk involved and system requirements. CRA shall plan for all efforts to ‘Detect’ incidents, anomalies and attacks through appropriate monitoring tools / processes;

CRAs should establish appropriate security monitoring systems and processes to facilitate continuous monitoring of security events and timely detection of unauthorised or malicious activities, unauthorised changes, unauthorised access and unauthorised copying or transmission of data / information held in contractual or fiduciary capacity, by internal and external parties. The security logs of systems, applications and network devices should also be monitored for anomalies.

a. Response

CRAs should act in a timely and co-operative manner to prevent, detect and respond to security incidents. Recognising the interconnectivity of information systems and networks and the potential for rapid and widespread damage, CRA should act in a timely and co-operative manner to address security incidents. They should share information about threats and vulnerabilities, as appropriate, and implement procedures for rapid and effective co-operation to prevent, detect and respond to security incidents. CRAs shall “respond’ by taking immediate steps after identification of the incident, anomaly or attack.

Alerts generated from monitoring and detection systems should be suitably investigated, including impact and forensic analysis of such alerts, in order to determine activities that are to be performed to prevent expansion of such incident of cyber-attack or breach, mitigate its effect and eradicate the incident.

The response and recovery plan of the CRA should aim at timely restoration of systems affected by incidents like cyber-attacks or breaches.

b. Recover

CRA shall “Recover’ from any cyber incident through incident management, disaster recovery and business continuity framework.

The recovery plan should be with reference to the Recovery Time Objective (RTO) and Recovery Point Objective (RPO) specified by the Board of the CRA as part of its IT infrastructure design, development and implementation.

Any cyber incident resulting in loss or destruction of data or systems should be thoroughly analyzed and lessons learned from such incidents should be incorporated to strengthen the security mechanism and improve recovery planning and processes.

c. Reassessment

CRAs should review and reassess the security of information systems and networks, and make appropriate modifications to security policies, practices, measures and procedures. New and changing threats and vulnerabilities are continuously discovered. Intermediaries should continually review, reassess and modify all aspects of security to deal with these evolving risks.

D. Fraud prevention controls

CRA shall take all measures necessary for prevention of all forms of fraud and including all activities involving third-party’s or individuals who access the CRA system. It shall be the duty of the Risk Management and Audit Committees of CRA to review the findings of any internal investigations or internal audit or any other audit requirement by the Authority where there is suspicion of fraud or irregularity or a failure of internal control systems of a material nature and report the matter to the board of CRA. The advice of the Board of CRA along with the complete information placed before the Board shall be reported to the Authority.

CRA shall immediately upon knowledge of occurrence of a fraud or if it has reason to suspect that a fraudulent act has occurred, have a duty to promptly report such information to the Authority and take appropriate action in line with the “PFRDA (Framework for Prevention and Reporting of Fraud Under NPS Architecture) Guidelines, 2023”. CRA shall take all immediate actions to prevent further losses, whether monetary or otherwise including recovery of any losses resulting from fraudulent or corrupt activity using all means at its disposal, including civil or criminal legal action.

As part of the risk management related to fraud prevention, the following shall be put in place including in the event of fraud having taken place:

• Identify the systemic lacunae/process that may have or have potential to facilitate perpetration of a fraud and put in place measures to plug the same.
• Initiate all actions necessary for recovery of losses caused to subscribers in the event of an incident.
• Identify the reasons for delay in detection including systems and procedures, identified as the causative factors and plug the lacunae, and report to Risk Management Committee and Audit committee of the CRA.
• Ensure that staff accountability is examined at all levels in all the cases of frauds or alleged manipulation of CRA systems.
• Review the efficacy of the remedial action taken to prevent recurrence of any fraud, such as strengthening of internal controls.
• CRA shall endeavour to develop a fraud or suspicious transaction identification system for raising early warning signals whereby transactions are flagged for suspicious activity based on parameters to be identified by the CRA including alerts/signals based on their experience, client profile and business models.

Further, the Risk Management policy of the CRA shall deal with the following clearly so that the management, staff and all others who are discharging the duties at CRA are aware of the controls:

Control Objective

It is defined as any action taken by management, the Board and other parties to enhance risk management and increase the likelihood that the established objectives and goals will be achieved. Control shall be incorporated to achieve the following objectives:

a. Safeguarding of assets

b. Effectiveness and Efficiency of operations

c. Accuracy and reliability of information

d. Compliance with applicable laws and regulations

 i. Types of Controls

a) Preventive – Preventive controls are designed to prevent errors from occurring. Control occurs prior to processing the transaction.

b) Detective – Detective controls are designed to detect errors after they have occurred during processing.

ii. Control Nature

a) Manual – Performed manually by person in-charge of the control.

b) Semi–Automated – Manual controls that use computer-produced information.

c) Automated – Performed solely by the computer with no manual intervention.

iii. Control Categories

a) Authorization – Approval of transactions executed in accordance with applicable general or specific policies and procedures.

b) Exception Reports – Reports generated by the entity to monitor a violation of a set standard. CRAs shall devise exception reports by category of operations – subscriber contributions, demographic detail changes, Exits and Withdrawals, fund management, ASP related, nodal office or POP related, sector related ( govt or corporate or voluntary etc).

c) Configuration Controls – Designed to prevent data against inappropriate processing by enforcing existence, accuracy, and presentation. Ex. building validation rules for the data being captured or processed.

d) Segregation of Duties – Separation of authority to prevent an individual to commit and conceal an error or an irregularity.

e) System Access – Ability of individual users to access a computer information system processing environment only as defined by the rights configured in that system. This shall include the access rules which govern the internal employees as well as external stakeholders.

f) Interface / Conversion Controls – Controls information transfers between 2 systems, whether automated or manual (sub-ledger to ledger) Ex: contribution receipts – Fund management systems, Inter CRA shifts, Exit and withdrawal module and subscriber registration and maintenance module etc.,

g) Management review – Activity of a person, different than the preparer, analysing and performing oversight of activities performed – Ex. Audit of transactions

h) Reconciliation Control – Designed to check whether two items / computer systems are consistent – No. of subscribers, contributions, AUM etc. generated from different systems. CRAs to identify all such sub-components of CRA system which have data from various sources and sub-systems to ensure that the data provided to the regulator or public or any stakeholder is consistent across for a given date.

iv. Some Key Controls

The following are some of the indicative key controls in relation to NPS accounts which shall be put in place. CRAs should examine the risk associated with each of the activity being performed and put in place controls in order improve quality, prevent any misuse of CRA system and occurrence of any fraud, whether leading to financial loss or otherwise.

a) Change of Bank account – Which shall surface any fraudster attempting to register bank account by producing tampered cheque copy or using the account other than of the subscriber or an attempted change where penny drop functionality fails due to name mismatch.

b) Name mismatch – At the time of redemption/pay-out, penny drop verification or other similar technology shall be compulsorily used to verify the name as available in the Bank vs in the CRA database. Any penny drop failure shall be reviewedand the processing of such redemption/pay-out shall be stopped immediately. Such penny drop failures shall be promptly brought to the notice of the concerned POP or nodal office. Redemption/pay-out shall be carried out only for those cases where the Penny drop is successful.

c) Access to the system: User creation for the CRA system shall be done by creating necessary request in online based tools. User privileges for internal uses to be provided on need-to-know basis and this will be reviewed on periodical basis and signed off by the respective department head. Also, the CRAs to ensure that subscribers/nodal offices/POPs/other stakeholders have privileges only to the extent that is required for them to operate the CRA systems for the desired objective.

d) Password policy: Change should be compulsorily enforced at pre-defined intervals and be made a complex one with numeric, special characters and alphabetical. A Password Policy duly approved by the risk management committee be put in place and concerning both internal users as well as the entire universe of external users. The CRA shall adopt a password policy that is consistent with emerging technologies, risks and practices of other market entities which are involved in providing financial services.

e) 2 Factor Authentication: As far as possible, Access to the system to subscribers, nodal offices, Point of Presence or any other stakeholders shall be given using a 2-factor authentication – user id & password and OTP based. Additionally, access to CRA systems for Nodal offices or POPs can also be provided basing on the Aadhar based authentication service.

f) Maker and Checker: No activity shall be allowed to be performed without maker and checker in all systems or sub-systems of CRA. Checker activity should ideally be independent creation and matching of the maker data creation should be explored. Wherever systemic maker checker is not available, robust process should be in place, with appropriate audit framework to ensure effectiveness.

g) Communication –

• Sending the information related to change of bank account number by Email and SMS mandatorily. The consolidated information on such changes shall also be informed to the POP or the nodal office at the time of their login into the CRA systems on a weekly basis preferably in their dashboard or inbox
• Similarly, in case of any change in mobile number in a PRAN, SMS communication shall be sent to both the old mobile number as well as the new mobile number that is proposed. Further, along with the SMS, email communication shall also be sent to the registered email ID.

h) Multiple PRAN with the same Bank account number or mobile number shall be verified and not allowed to operate for any redemption/pay out including to explore any fraudulent bank account insertion.

E. Supplementary Risk Mitigation Measures

The following are some of the supplementary risk mitigation measures which are indicative and shall be put in place by the CRAs. They should examine the risk associated with each of the activity being performed and put in place similar risk mitigation measures in order improve quality, prevent any misuse of CRA system and occurrence of any fraud, whether leading to financial loss or otherwise.

1. Red Alerts: 

This is a pro-active process to identify potential fraud and risk areas based on a pre-agreed combination of scenarios that happen in the PRAN (customer profile) through Financial Transaction (FT) / Non-Financial Transaction (NFT). All such qualifying cases shall be reviewed by Risk Management Team to ensure that there are no discrepancies. If any observation is noticed, then such instances are shared with the respective stakeholders for further action. Few of the indicative Red Alert scenarios are listed below and the CRAs should build red alerts basing on their experience in dealing with the CRA systems and the concerned stakeholders including subscribers, nodal offices, point of presence etc:

• Change in bank account details in a PRAN more than once
• Changes in e mail/mobilemore than once
• Requests for change in Date of Birth, Date of retirement, Name
• Withdrawals from dormant or inactive accounts.
• Withdrawals from account within a short time after changes in core details
• Logging into CRA system from a different city and from the city where the office is situated – This is only to keep a tab on the activity and need not be a show stopper.

2. Monitoring or examination of PRANs:

CRA shall monitor and specifically examines such PRANs where Change of Bank and other changes in demographic details had taken place and there is an Exit or withdrawal request (including partial withdrawals).

• Exit or withdrawal (including partial withdrawals) in a PRAN where change of Mobile Number has taken place prior to 45 days of initiation of Exit or withdrawal request including partial withdrawal.
• Exit or withdrawal (including partial withdrawals) in a PRAN where Change of Bank /Addition of Bank has taken place prior to 45 days of initiation of Exit or withdrawal request including partial withdrawals.
• Transactions (involving Exit or withdrawal including partial withdrawals) in a PRAN where there is a rejection by the nodal offices or Point of Presence (POP) in the last one year.
• Initiation of Exit or withdrawal request including partial withdrawals placed after nominee change within 45 days.

The CRA shall design and implement an efficient alert mechanism (SMS, Mail and physical communication) to subscribers, nodal offices, POPs and other stakeholders whenever there is a request for a change in the demographic details including nomination or exit and withdrawal request is received or processed or contribution credit information for a PRAN is received in the CRA system.

CRA shall review such parameters from time to time to include any additional parameters for risk mitigation.

F. Quality policy

• CRA shall have a consistent and documented policy on quality assurance for all types of transactions that happen or occur in the CRA system and initiated by subscriber or a POP or a nodal office or any other stakeholder having access to the CRA systems. The policy on such quality analysis shall include Root Cause Analysis (RCA), modifications suggested in systems or processes in order to improve the quality of operations and transactions that are taking place in the CRA system.
• CRA shall analyse all the transaction types based on the policy put in place as part of the risk management policy.
• Risk Management committee and Audit committee shall be intimated on a quarterly basis on the findings of the quality analysis so conducted in the form of a detailed Quality Performance Review report by the Head of CRA operations.

The framework shall be submitted to the Authority after approval by the board of CRA, within 60 days. The policy shall also be reviewed and updated periodically.

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