The Pension Fund Regulatory and Development Authority (PFRDA) has released a new set of amendments to the PFRDA (Trustee Bank) Regulations, 2015. These amendments, known as the Pension Fund Regulatory and Development Authority (Trustee Bank) (Amendment) Regulations, 2023, signify a pivotal shift in the regulatory framework overseeing trustee banks in India. This article delves into the details of the notification issued on February 9, 2024, outlining the significant changes introduced and their implications for trustee banks and their stakeholders.
Detailed Analysis
1. Introduction of New Definitions and Requirements One of the notable amendments is the introduction of a new definition for “auditor” and the inclusion of “system auditor” within its scope. This change aligns with the growing emphasis on technological and cyber security in the financial sector, mandating auditors to be empaneled with CERT-in or the Ministry of Electronics and Information Technology (MeitY), Government of India.
2. Compliance and Governance Enhancements The amendments also redefine the role of the “compliance officer,” highlighting the increased responsibility on trustee banks to monitor and ensure compliance with the Act, rules, regulations, and various directives issued by the PFRDA. This marks a significant step towards strengthening governance and compliance mechanisms within trustee banks.
III. Application and Registration Process Reforms The PFRDA has revised the application fee to ten lakh rupees plus applicable taxes, emphasizing the Authority’s intent to streamline the application and registration process for trustee banks. Additionally, the regulations introduce a rigorous verification process for applicants, including document verification and infrastructure inspection, to ensure only qualified entities are granted registration.
1. Enhanced Disclosure and Information Furnishing Requirements Trustee banks are now required to disclose any material changes during the application pendency promptly and furnish information or clarification as required by the PFRDA. This increased transparency aims to maintain the integrity of the pension system and protect subscribers’ interests.
2. Provisions for Change in Status or Constitution The amendments stipulate that any change in the status or constitution of a trustee bank, including corporate restructuring or change in control, requires prior approval from the PFRDA. This provision is intended to maintain stability and continuity in the management and operations of trustee banks.
3. Focus on Fraud Prevention and Subscriber Protection A significant addition is the requirement for trustee banks to develop and implement a fraud prevention and mitigation policy. This includes establishing internal controls and indemnifying subscribers for losses due to fraud or negligence, underscoring the PFRDA’s commitment to protecting subscribers.
Conclusion: The Pension Fund Regulatory and Development Authority (Trustee Bank) (Amendment) Regulations, 2023, represent a comprehensive overhaul of the regulatory framework governing trustee banks in India. These changes reflect the PFRDA’s proactive approach to enhancing governance, compliance, and security within the pension sector. By introducing stricter compliance requirements, enhancing transparency, and focusing on subscriber protection, the amendments aim to fortify the trust and integrity of India’s pension system. Stakeholders in the pension fund industry must closely examine these changes to ensure compliance and leverage the evolving regulatory landscape for enhanced operational efficiency and subscriber satisfaction.
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PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY
NOTIFICATION
New Delhi, the 9th February, 2024
PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY (TRUSTEE BANK)
(AMENDMENT) REGULATIONS, 2023
No. PFRDA/16/04/06/0016/2017-REG-TB.—In exercise of the powers conferred by sub-section (1) of section 52 read with clauses (e), (l), (n), (o) and (p) 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 (Trustee Bank) Regulations, 2015, namely:-
1. These regulations may be called the Pension Fund Regulatory and Development Authority (Trustee Bank) (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 (Trustee Bank) Regulations, 2015, as amended from time to time (hereinafter referred to as ‘the principal regulations’), the following amendments are made:-
I. In sub-regulation (1) of regulation 2 of the principal regulations,
i. New definition clause (aa) shall be inserted immediately after clause (a) as follows:
“(aa) “auditor” shall have the same meaning as defined under section 141 of the Companies Act, 2013 and includes system auditor.
Explanation.– System auditor means an auditor empaneled with CERT-in or Ministry of Electronics and Information Technology (MeitY), Government of India;”
ii. Clause (c) shall be substituted as follows:
“(c) “compliance officer” means an employee of the trustee bank, designated as such, by its board for monitoring compliance of the provisions of the Act, rules, regulations, guidelines, circulars, directions and instructions issued by the Authority;”
II. Sub-regulation (2) of regulation 2 of the principal regulations shall be deleted;
III. Sub-regulation (2) of regulation 3 of the principal regulations shall be deleted;
IV. Sub-regulation (5) of regulation 3 of the principal regulations shall be substituted as follows:
“(5) An applicant shall pay a non-refundable application fee of rupees ten lakh plus applicable taxes and levies thereon, along with its application to the Authority.”
V. Regulation 5 of the principal regulations shall be substituted as follows:
“5. Disclosure of information.– The applicant shall submit to the Authority any material changes in the information furnished during pendency of the application, within seven days of occurrence of such changes.”
VI. Sub-regulation (1) of regulation 6 of the principal regulations shall be substituted as follows:
“6. Furnishing of information and clarification.– (1) The Authority may require the applicant to furnish further information or clarification, for consideration of its application.”
VII. Sub-regulation (1) of regulation 7 of the principal regulations shall be substituted as follows:
“7. Verification of information.– (1) While processing the application, the Authority may,–
(a) verify the documents, inspect the infrastructure, and resources including technological capabilities which the applicant is required to fulfil; and
(b) seek report from any agency which may have a bearing on the application.”
VIII. Sub-regulation (3) of regulation 8 of the principal regulations shall be substituted as follows:
“(3) Before rejecting an application, the Authority shall give a notice to the applicant to rectify the defect(s) in its application within fifteen days of receipt of such notice from the Authority.
Provided that where the Authority is of the prima facie opinion that the registration ought not to be granted, it shall communicate the reasons for forming such an opinion and give the applicant an opportunity to explain why its application should be accepted, within fifteen days of the receipt of the communication from the Authority, to enable it to form a final opinion.
Provided further that where an application has been rejected on the grounds of being incorrect, false or misleading in nature or has omitted to disclose material facts, no fresh application for grant of certificate of registration shall be considered for a period of one year, from the date of such rejection.”
IX. Clause (a) of sub-regulation (3) of regulation 9 of the principal regulations shall be substituted as follows:
“(a) where the trustee bank proposes to change its status or constitution, it shall obtain prior approval of the Authority. Explanation.– Change in status or constitution shall include the following,–
(i) amalgamation, demerger, consolidation or any other kind of corporate restructuring under the provisions of the Companies Act, 2013 (13 of 2013) or the provision of any other law for the time being in force or any agreement or arrangement which would have the effect of such corporate restructuring;
(ii) any change in control of the trustee bank.
Explanation.– Control means as defined under section 2(27) of the Companies Act, 2013;and
(iii) any change in the legal status of the trustee bank;”
X. Clause (d) of sub-regulation (3) of regulation 9 of the principal regulations shall be substituted as follows:
“(d) it shall at all times meet the eligibility criteria specified in these regulations and other requirements laid down under the selection process.
For this purpose, the trustee bank shall submit a certificate evidencing compliance with eligibility conditions. Such certificate shall be placed before its board and its observations, if any, along with explanation thereon, shall be submitted to the Authority, within sixty days from the end of the financial year, or within sixty days from the expiry of tenure of its registration;”
XI. Regulation 11 of the principal regulations shall be substituted as follows:
“11. Registration fee.– An applicant shall pay a non-refundable registration fee of rupees twenty five lakh plus applicable taxes and levies thereon, to the Authority.”
XII. Regulation 12 of the principal regulations shall be substituted as follows:
“12. Annual fee.– The trustee bank shall pay annual fee plus applicable taxes and levies thereon, on quarterly basis before the due date, which shall be determined through a bidding process or in such other manner as may be determined by the Authority, at the time of selection process.”
XIII. New sub-regulation (1a) shall be inserted immediately after sub-regulation (1) of regulation 13 of the principal regulations as follows:
“(1a) The Authority may invite application seeking registration, ninety days or such other time period, prior to the expiry of the tenure of the Trustee Bank, registered with the Authority.”
XIV. Regulation 14 of the principal regulations shall be deleted;
XV. New sub-regulation (9a) shall be inserted immediately after sub-regulation (9) of regulation 16 of the principal regulations as follows:
“(9a) In the event of the trustee bank failing to adhere to the service standards as provided under service level agreement or any guidelines issued by the Authority, whereby any loss or inconvenience is caused to the subscriber, trustee bank shall be liable to compensate the subscriber, in accordance with service level agreement or guidelines issued by the Authority, for this purpose.
Provided that there shall be no requirement of any loss or inconvenience to be proved on the part of the subscriber.”
XVI. New sub-regulation (12) shall be inserted immediately after sub-regulation (11) of regulation 16 of the principal regulations as follows:
“(12) The trustee bank shall 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,–
(a) laying down internal controls to be followed and ensure that such controls are adequate and operating effectively; and
(b) making provision for indemnifying the subscriber for any loss on account of fraud or negligence on the part of the trustee bank, which has been established.
Explanation.– For the purposes of this regulation, the term internal control means the policies and procedures adopted by the trustee bank for ensuring the orderly and efficient conduct of its functions, including prevention and detection of frauds and errors, the accuracy and completeness of the records, and the timely preparation and submission of reliable compliance reports.”
XVII. Clause (a) of sub-regulation (1) of regulation 19 of the principal regulations shall be substituted as follows:
“(a) extracts of internal audit report from the independent auditors with respect to the bank accounts of National Pension System Trust, compliance certificates and subscriber complaints reports, on a quarterly basis;”
XVIII. Regulation 20 of the principal regulations shall be substituted as follows:
“20. Inspection and audit.– (1) The Authority shall inspect trustee bank at regular intervals as it deems fit.
Notwithstanding the above, it may at any time as it deems fit, undertake directly or through an auditor or its authorized representative, an inspection or audit of the books, accounts, records including the call records and electronic records and documents of the trustee bank, 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 accounts, records including call records and electronic records and documents are being maintained in the manner required under these regulations;
(c) ascertaining whether adequate internal control systems, procedures and safeguards have been established and are being followed by the trustee bank;
(d) ascertaining whether the provisions of the Act, rules or regulations made thereunder or guidelines, circulars, directions and instructions issued by the Authority are being complied with;
(e) inquiring into the complaints received from subscribers, nodal offices, intermediaries or any other person on any matter having a bearing on the activities of the trustee bank; and
(f) inquiring suo motu into such matters as may be deemed fit in the interest of subscribers.”
XIX. New sub-regulation (3) shall be inserted after sub-regulation (2) of regulation 23 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.”
XX. Clause (i) of sub-regulation (1) of regulation 26 of the principal regulations shall be substituted as follows:
“(i) any other reason which in the opinion of the Authority warrants suspension or cancellation of the certificate of registration granted;”
XXI. Sub-regulation (3) of regulation 26 of the principal regulations shall be deleted;
XXII. Regulation 27 of the principal regulations shall be substituted as follows:
“27. Surrender of certificate of registration.– (1) A trustee bank may surrender its certificate of registration by making a request to the Authority.
(2) For consideration of such request, the Authority may require the trustee bank to satisfy the following,–
(a) arrangements made by it for maintenance and preservation of records and other documents required to be maintained under the Act, regulations, guidelines and circulars, at its own cost and expense, to ensure continuity of service to subscribers;
(b) rectifying the defaults and pending actions, if any;
(c) redressal of subscriber grievances; and
(d) any other measures to be taken in the interest of the subscribers.
(3) While considering the request for surrender, the Authority may impose such conditions upon the trustee bank as it deems fit for the protection of interest of the subscribers.
(4) No request for surrender shall be entertained from a trustee bank in respect of which any investigation, inquiry or adjudication has been initiated or is contemplated by the Authority.
(5) No surrender shall be permitted unless the Authority is satisfied that the trustee bank has complied with or has taken steps to comply with the requirements under sub-regulation (2) and other conditions, if any, under sub-regulation (3).
(6) Where the Authority has accepted the request for surrender, it shall cancel the certificate of registration granted to the trustee bank and inform trustee bank within seven days and place such information on its website and also direct the entity to place the information on its website and disseminate the information, in such manner, as may be ”
XXIII. Regulation 28 of the principal regulations shall be substituted as follows:
“28. Effect of suspension or cancellation of certificate.– (1) On and from the date of suspension of the certificate of registration, the trustee bank shall, where directed,–
(a) cease to transact fresh business under the pension schemes covered under the Act, as the case may be;
(b) take such action in respect of the assets, records, documents or information that may be in the custody or control of the trustee bank, within the time limit and in the manner as may be required under the relevant regulations or as may be directed by the Authority;
(c) transfer at its own cost the assets, records, documents or information that are in its custody or control to another trustee bank in the form and manner as may be directed by the Authority;
(d) the trustee bank shall at its cost and expense provide all the necessary support in ensuring smooth transfer of all the assets under its management where required by the National Pension System Trust or the Authority, and make such public announcement or disclosure as may be conducive to subscriber’s interest, regarding such transfer of It shall also ensure that the transfer of all the relevant documents, record or information is made in accordance with the directions issued by the Authority;
(e) the transfer of such assets shall be undertaken in accordance with the guidelines or instructions that may be issued by the Authority; and
(f) the trustee bank shall be subject to the directions of the Authority until all such transfers or actions are completed or until, the certificate of registration remains suspended.
(2) On and from the date of cancellation of the certificate of registration, the trustee bank shall,–
(a) cease to carry on and wind up its affairs qua the activities in respect of which registration has been granted;
(b) return the certificate of registration so cancelled to the Authority and inform such other agencies, as may be directed by the Authority of the said fact and disseminate the information on its website and in such other manner as may be directed;
(c) carry out any other directions within the time limits given by the Authority, and report compliance of the same;
(d) make provisions as regards liability incurred or assumed by it; and
(e) take such other action including the action relating to any records or documents and assets of the subscribers that may be in the custody or control of such trustee bank, within the time limit and in the manner, as may be ”
Dr. DEEPAK MOHANTY, Chairperson
[ADVT.-III/4/Exty./740/2023-24]
Note : The Pension Fund Regulatory and Development Authority (Trustee Bank) Regulations, 2015 were published vide Notification No. PFRDA/12/RGL/139/6, on the 23rd March, 2015 in the Gazette of India, Extraordinary, Part III, Section 4, No. 103, and were subsequently amended by the Pension Fund Regulatory and Development Authority (Trustee Bank) (First Amendment) Regulations, 2019 published vide Notification No. PFRDA/12/RGL/139/6, on the 19th February, 2019 in the Gazette of India, Extraordinary, Part III, Section 4, No. 70.
