RBI extends deadline to implement workflow-based solution

In a recent circular dated November 25, 2024, RBI has extended the deadline for “Streamlining of Internal Compliance monitoring function – leveraging use of technology” to April 30, 2025 amending para 3 of the original circular no. RBI/2023-24/117 DoS. CO. CSITEG.SEC.No.9/31-01-015/ 2023-24 dated January 31, 2024.

The recent circular of November 2024 is currently not in public domain and this article is based on an internal copy of the same received from one of our associations.

In this recent  circular, RBI has further advised the Regulated Entities (REs) to ensure that their system, a workflow-based solution designed to enhance the effectiveness of the compliance function, is equipped with the necessary capabilities to seamlessly integrate with the DAKSH portal of the Reserve Bank of India through Straight-Through Processing (STP) while maintaining robust data security and data protection measures.

Further, REs have the option to use IBA’s model framework for implementing the provisions of this circular as a guide for implementing or fine tuning their Compliance monitoring systems.

Applicability

The circulars have advised the following RE (Regulated Entities) to implement workflow-based solution to enhance the effectiveness of the compliance function.

• Scheduled Commercial Banks (excluding Regional Rural Banks)
• Small Finance Banks
• Payment Banks
• Primary Urban (Co-operative Banks) (Tier 3 & 4)
• Upper and Middle Layer of Non-Banking Financial Companies (including Housing Finance Companies)
• Credit Information Companies
• All India Financial Institutions (EXIM Bank, NABARD, NaBFID, NHB and SIDBI)

What is RBI’s DAKSH platform

The Reserve Bank of India (RBI) has taken a significant step towards modernizing its supervisory processes with the launch of DAKSH, a cutting-edge Advanced Supervisory Monitoring System. This innovative initiative aims to enhance the efficiency and effectiveness of compliance monitoring in supervised entities such as banks and NBFCs.

DAKSH: A Powerful Tool for Enhanced Supervision

DAKSH, a web-based end-to-end workflow application, empowers the RBI to do the following:

• Focused Compliance Monitoring: Track compliance requirements with greater precision, fostering a robust compliance culture.
• Seamless Communication: Facilitate efficient communication and collaboration between the RBI and supervised entities.
• Streamlined Inspections: Optimize inspection planning and execution through automated processes.
• Robust Cyber Incident Management: Enable swift reporting and analysis of cyber incidents.
• Data-Driven Insights: Generate comprehensive MIS reports to support informed decision-making.

The name “DAKSH,” which translates to “efficient” and “competent”. By leveraging advanced technology, DAKSH will enable the RBI to conduct more efficient and data-driven supervision.

Common Compliance Challenges for BFSI sector in India

• Complex Regulatory Landscape: The BFSI sector in India is heavily regulated by multiple authorities like RBI, SEBI, IRDAI, etc. Keeping up with frequent changes and interpretations is a significant challenge.
• Data Privacy and Security: With increasing digitization and data-driven operations, safeguarding sensitive customer data from cyber threats and ensuring compliance with data protection regulations like the Personal Data Protection Act (PDPA) is crucial.
• Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF): BFSI institutions must implement robust AML/CTF programs to identify and report suspicious transactions, which requires continuous monitoring and training.
• Know Your Customer (KYC) and Customer Due Diligence (CDD): Maintaining accurate and up-to-date customer information, verifying identities, and conducting ongoing monitoring to mitigate risks are essential.
• Technological Advancements: The rapid pace of technological change, such as AI, machine learning, and blockchain, introduces new compliance challenges related to data governance, cybersecurity, and operational risks.

How compliance management software can help with Complex Regulatory Landscape

Compliance management software can be a powerful tool for navigating complex regulatory landscapes. These systems centralize regulatory information, automate monitoring processes, and generate alerts for upcoming deadlines and changes. By automating tasks and streamlining workflows, compliance management software significantly reduces the risk of non-compliance and the associated penalties. Additionally, these systems often include robust reporting features, enabling organizations to track compliance progress, identify potential risks, and demonstrate regulatory adherence to auditors and regulators.