The NBFC Account Aggregator License permits financial institutions to share data about their clients digitally. Companies applying for this license must register under the Companies Act 2013 and possess a minimum capital structure, while the general character of their administration should not harm public interest.
NBFC compliance must establish and implement a board-approved policy for responding to and resolving customer grievances within one month and deploy excess investments in non-tradable instruments.
Regulatory Requirements
- An NBFC Account Aggregator License is a crucial regulatory requirement that helps safeguard customer data and deliver enhanced financial services to customers. These companies are responsible for collecting all financial information from customers and aggregating it for secure storage, adhering to RBI guidelines while keeping their internal systems up to date.
- For an NBFC Account Aggregator license to be awarded, a company must register under the 2013 Corporate Act and fulfil all other requirements. A net-owned fund of Rs 2 crores must exist prior to being eligible to apply for this license; furthermore, an IT framework that adheres to RBI guidelines must also be developed to secure customer data.
- An aggregator must have a board-approved policy for handling and disposing of customer grievances, along with providing the name and contact details of its Grievance Redressal Officer on its website and at their place of business. Furthermore, an internal mechanism for monitoring and evaluating processes, systems, procedures, controls, and strong authentication measures to secure customer data must also exist within an aggregator’s organization.
- Additionally, an aggregator must not disclose its customers’ financial information to any third party and must avoid engaging in activities that are deemed harmful to the public interest. Furthermore, they must adopt a Citizen’s Charter which ensures customer rights are upheld – cutting off financial information of customers before their consent has been obtained is also prohibited – furthermore, they should use their resources exclusively for this activity and employ an IT infrastructure capable of handling the large volume of data they will be required to store and transfer along with having a solid business plan and financial foundation in place – otherwise they risk becoming insolvent and going bankrupt.
Eligibility
To qualify as an NBFC-AA, one must meet specific eligibility requirements. These include having adequate resources and financial wherewithal; adequate capital structure; appropriate promoters; a leverage ratio not exceeding 7; having a proper IT infrastructure that protects customer financial data securely and does not share it without prior customer permission; being capable of offering an array of services – credit, wealth management advice, investment offers; as well as future services powered by artificial intelligence like robo banking (robo banking).
NBFC account aggregators are non-banking financial companies that aggregate information from various sources into a single, central view of a customer’s finances. This innovation empowers consumers, making the overall economic landscape more transparent and efficient. Yet, it must adhere to strict regulatory guidelines while offering top-notch security protection standards to safeguard customer data.
To be eligible to become an NBFC-AA license holder, one must meet specific criteria:
- An NBFC-AA’s primary function is to organize client account information in an easy and consolidated manner and store it so that it can be quickly retrieved when needed. Consumers have complete discretion in whether or not to utilize this service; however, some NBFC-AAs also perform IT-related activities, which provide them with advanced knowledge.
- An outstanding IT infrastructure is vital to the success of an NBFC-AA, as it facilitates the storage and transfer of financial data between FIPs. Furthermore, this must protect from unauthorized access while protecting customer credentials from theft. NBFC-AAs must possess sufficient financial resources to meet their operating expenses and liabilities.
- In September 2016, the Reserve Bank of India issued master directions for an entirely new class of non-bank financial companies: account aggregators. These entities act as consent brokers, facilitating the consolidation of accounts across financial sector organizations while sharing data only with customers’ consent, making them highly secure entities.
Application Process
- A National Bank Finance Company Account Aggregator License provides individuals with easy access to all their account information in one central location, saving time and effort, offering a holistic overview of their financial assets, helping them make informed decisions, and enhancing their overall well-being. Aggregators provide services such as personal financial management platforms, wealth advisory services, investment offers, and security measures designed to protect users’ financial data. However, before applying for this license, they must understand the compliance requirements and the regulatory framework.
- An entity wishing to conduct aggregator activities must register as a non-banking finance corporation under the Companies Act 2013. Furthermore, they must possess sufficient resources and fit and proper promoters; moreover, they must adhere to the RBI master directions regarding CoRs for CoR certification purposes.
- After receiving in-principle approval from their bank, applicants must create a technology platform and draft all legal documentation to start their business. This process could take up to 12 months, during which they must obtain an NBFC-AA license from the RBI.
- An aggregator’s primary role is to gather data from various accounts in FIP, combine and sort it on one platform for storage and disclosure to users, in accordance with RBI-DNBR instructions. Aggregators may share user financial information with other financial services providers after receiving consent from each user.
- An aggregator must implement a board-approved policy governing its handling and disposition of customer grievances in a transparent and accessible way for public use. Furthermore, they must implement an auditing system to confirm that the information provided by their clients is correct.
- The RBI requires that an aggregator comply with its statutory regulations, ensuring that it does not misuse customer information or expose them to risk. They should respond promptly when customers contact them with queries, notify regulators when they alter policies or procedures, and submit regular reports regarding accounts to the relevant regulatory bodies.
Compliances
- Compliance of NBFC Account Aggregators is crucial to safeguard customer data and privacy, including the protection of sensitive information, adherence to regulatory guidelines, and regular reporting to regulators. This helps companies build their reputation while upholding service integrity, avoiding fines or penalties, and better protecting themselves from data breaches and cyberattacks.
- A data aggregator should only collect information from financial entities regulated by the RBI, SEBI, EPFO, and other government agencies. Furthermore, they must only use this data for providing services to clients; any misuse would violate RBI regulations regarding storage and transmission.
- Aside from fulfilling its legal requirements and meeting specific operational efficiency benchmarks, an NBFC-AA must also comply with specific regulatory requirements to ensure its operational effectiveness and compliance with the law. For instance, it must meet minimum net worth requirements, adhere to data protection and privacy guidelines, and establish a robust technology infrastructure, in addition to reporting its compliance status to the RBI on a continuous basis.
Benefits of NBFC Account Aggregator License
- Finding financial products, such as credit cards or loans, can be difficult and time-consuming for some individuals due to the numerous documents and economic data required. However, the Account Aggregator Framework, introduced by the government as a solution, is now available. Individuals can share their financial data more efficiently with various financial institutions, allowing for faster approval and reduced delays when applying. It’s a fantastic initiative by them that should save time and effort when using financial products, such as loans or credit cards.
- In 2016, the Reserve Bank of India (RBI) introduced the NBFC Account Aggregator (AA) framework, enabling individuals to consolidate their assets across multiple financial institutions securely. Data shared is subject to stringent security standards implemented by these companies that RBI regulates; additionally, consumers have complete control over what data is shared – no reselling of data allowed, and they must seek consent before sharing any personal data. Additionally, consumers are free to withdraw this consent at any time.
- The newly implemented NBFC AA framework by the government will bring numerous benefits. One key advantage is that it enables financial institutions to assess creditworthiness more quickly and efficiently, as well as identify non-performing loans (NPLs) more readily. This will increase formal lending in the economy and spur overall economic development.
- Additionally, aggregators can offer their customers other financial services, such as wealth management advice and investment opportunities. Furthermore, they can use the collected data to develop future services, such as robo-banking using artificial intelligence, making the aggregators even more competitive in the market and giving their customers more options when selecting financial products.
- One key advantage of the NBFC-AA framework is that it facilitates easier access to credit for individuals. In the past, when applying for loans or credit cards from NBFC-AA institutions, applicants were required to submit numerous documents to enable the institution to assess their creditworthiness. This process can often take several days to be approved. With its aggregator framework, this process has been significantly simplified, saving both parties time.
- Another advantage of an aggregator is that it can assist other NBFCs in lowering their non-performing assets (NPAs) by helping identify loan applicants, thus decreasing NPAs and the cost of capital for them, making them more profitable in the long run.
Conclusion
While NBFC-AAs offer many advantages, they also come with their risks. These may include difficulties securing adequate funding to operate as an aggregator and not all consumers appreciating its services. Aspiring NBFC-AAs must recognize these potential threats and take steps to address them accordingly.
To succeed in such a competitive market, NBFC-AAs must understand their industry’s needs and develop a business plan to capitalize on those opportunities. By consolidating financial data and offering value-added services, NBFC-AAs can draw new customers while expanding their business. Furthermore, taking the time to understand the regulatory framework and comply with data privacy and security measures will enable NBFC-AAs to maximize their potential within the financial services sector.
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