Overview on NBFC Account Aggregator License
NBFC Account Aggregator License is required for an entity to act as a consent broker which will enable financial data sharing among financial institutions in the financial sector. However, the data can only be transferred with the consent of the user. This was conceptualized by the RBI.
Those entities that desire to register as an NBFC-AA need to apply for NBFC-Account Aggregator License and they need to abide by all the master direction instructions of RBI to maintain the validity of their license. Non-compliance could lead to the cancellation of NBFC-AA license of such entity.
What do you mean by Account Aggregator?
An Account Aggregator is a form of RBI regulated entity that has an NBFC-AA license that ensures that an individual can securely and digitally access and share information from one financial institution, with which they have an account, to any other regulated financial institution in the Account Aggregator network. Here it is important to understand that the data cannot be shared without the consent of the individual. An individual can choose between many Account Aggregators. Account Aggregator has replaced the long terms and conditions form of ‘blank cheque’ acceptance with step by step permission and control for each use of your data.
Financial Information Provider and Financial Information User
The sharing of data takes place from financial information provider to the financial information user.
For your better understanding we have explained the meaning of both these terms:
- Financial Information Provider (FIP):
An entity offering financial services regulated under the financial sector;
- Financial Information User (FIU):
An entity regulated by financial sector regulators such as RBI, SEBI, IRDA, PFRDA.
The financial information which will be shared is defined under the master directions issued by RBI (Department of Non-Banking Regulation) DNBR.
The Financial information is defined under master directions as:
“Financial Information” means information in respect of the following with financial information providers:
- Bank deposits including fixed deposit accounts, savings deposit accounts, recurring deposit accounts, and current deposit accounts;
- Deposits with NBFCs;
- Structured Investment Product (SIP);
- Commercial Paper (CP);
- Certificates of Deposit (CD);
- Government Securities (Tradable);
- Equity Shares;
- Mutual Fund Units;
- Exchange-Traded Funds;
- Indian Depository Receipts;
- CIS (Collective Investment Schemes) units;
- Alternative Investment Funds (AIF) units;
- Insurance Policies;
- Balances under the National Pension System (NPS);
- Units of Infrastructure Investment Trusts;
- Units of Real Estate Investment Trusts;
- Any other information as may be specified by the Bank for the purposes of these directions, from time to time.
Benefits of obtaining NBFC Account Aggregator License
Obtaining NBFC AA License is beneficial in the following ways:
- Operational advantage;
- Ensures smooth flow of credit information;
- Serving clients becomes easy;
- Helps in reducing verification time for lenders hence increases efficiency;
- Reduces the risk of bad loans.
Fundamentals of NBFC Account Aggregator License
The NBFC-AA provides information regarding the accounts held by customers. Information is held in an organized, consolidated and retrievable manner. For a customer, it is completely voluntary to avail the services of the account aggregator. The NBFC-AA performs IT-oriented activities which mean that customer will get digital information. The main role of NBFC-AA (NBFC Account Aggregator) is account aggregation; therefore, they will not enter into financial assets transaction with its customers, unlike other NBFCs.
An aggregator is permitted to deploy investible surplus in instruments & not for trading. Board-approved policy of the account aggregator will decide the pricing of services. Such guidelines & policy adopted by the account aggregator must be transparent and available in the public domain. The services rendered by the NBFC-AA (NBFC Account Aggregator) must be secured by the appropriate agreements/ between the aggregator, customer and financial service provider.
The terms and conditions of the license must be followed by NBFC-AA (NBFC Account Aggregator) like protection of customer, grievance redressal, data security, corporate governance, audit control, and risk management framework. Precisely, NBFC-AA (NBFC Account Aggregator) collects information regarding the customer’s financial assets and provides it to the customers in a consolidated, organized and retrievable manner. Set of guidelines was drafted by the RBI which must be followed by these types of entities.
What are the Requirements for NBFC-AA Registration?
For obtaining NBFC Account Aggregator License, there is a requirement of net owned funds of Rs. 2 crore. However, the company will have a time period of 12 months to raise money after obtaining the in principle approval from RBI. No services can be provided other than account aggregation by NBFC-AA (NBFC Account Aggregator).
After receiving the in-principle approvals from the regulator, NBFC-AA (NBFC Account Aggregator) will have a time period of 12 months to put in place all the necessary technology and tie-ups required to carry out this business of aggregation. As per the RBI, an entity which is indulged in aggregating accounts of a particular financial sector regulated by the other regulators can be exempted from obtaining approval of RBI. RBI regulates the NBFC-AA (NBFC Account Aggregator). These types of entities are not allowed to carry financial activities like other NBFCs.
NBFC-AA will provide information to the financial user regarding the customer. They are not eligible to do any fund based activities like other NBFCs. Prima facie we cannot consider them as NBFCs by nature. NBFC Account Aggregators cannot utilize the information of the financial assets of the customers for any other purpose.
Duties & Responsibilities of NBFC Account Aggregators
The prime responsibility of the NBFC-AA is to collect information of any customer under explicit consent and disseminate such information. In this segment we look at some of the duties and responsibilities of the NBFC-AA (NBFC Account Aggregators) as per the directions laid down by the RBI:
- Obtain customer consent;
- Obtain in principal approval to render such activities ;
- Envisage methods of proper customer identification;
- Protection of customer’s rights;
- Safeguard financial information of customers;
- Ensure that no information is retrieved and transferred without obtaining the proper consent of the customer.
Process of Obtaining NBFC Account Aggregator License
The process of NBFC-AA registration is carried out on the basis of master directions issued by the RBI. This type of entity shall not hold public funds and will not have any customer interface. For NBFC-AA License, the following steps need to be undertaken:
- The first step is to get company registration as per Companies Act, 2013.
- The company must have the necessary resources to offer such type of services.
- The company needs to make an application to the RBI Department of Non-Banking Regulation, in Mumbai.
- Such application should be in the form as provided under Annex 1 (Master Direction).
- On examining the eligibility requirements if the RBI is satisfied that the company has the necessary resources and wherewithal, adequate capital structure, fit and proper promoters, leverage ratio of not more than 7, then the RBI shall grant in-principle approval.
- The in-principle approval will be valid for a period of 12 months and within that period the company is required to put in place technology platform, enter into other documentations and also report position of compliance with the terms of in-principle approval to the bank.
- Finally the RBI shall grant a certificate of registration as NBFC AA after being satisfied that the company can commence operations and is in compliance with the requirements of registration.
What needs to be done by the NBFC-AA (NBFC Account Aggregator) during the validity period of in-principle approval?
During the validity period, the company shall make arrangement for an information technology platform and complete all the legal documentation which is necessary to carry out operations. However, in the case of non-compliance, RBI may cancel the CoR of NBFC-AA.
You should know the conditions on which RBI can cancel the NBFC Account Aggregator License:
- If the company cease to carry the operation of account aggregation;
- The company is not complying the conditions subject to which the certificate of registration has been issued by the RBI; or
- If it is found that NBFC-AA (Non-Banking Financial Company-Account Aggregator) is no longer eligible to hold the certificate of registration; or
- If the company fails to comply with the following conditions:
- Directions issued by RBI; or
- Maintaining accounts;
- Publish and disclose its financial position in accordance with the law;
- Inspection of books of account.
What are the fit and Proper Criteria for Promoters as per RBI?
For the purpose of fit and proper criteria, NBFC-AA (NBFC Account Aggregator) shall:
- Draft a policy for ascertaining the fit and proper criteria of promoters.
- The policy will be completely based on the guidelines issued by RBI.
- A declaration shall be obtained from the directors/ managing director/ CEO as per the format provided under directions.
- A covenant deed shall be obtained by the directors/ managing director/ CEO as per the format provided under directions.
- Furnish annual statement on change of directors/ managing director/ CEO duly certified by the Statutory Auditors regarding the fit and proper criteria within 15 days from the closure of the financial year.
Norms for Data Security by NBFC-AA (NBFC Account Aggregator)
It is mandatory for NBFC-AA to have proper IT infrastructure as they carry a lot of financial information of various customers. These types of entities shall be solely responsible for the safe storage & transfer of data from financial information providers to financial information users. They would also have to ensure that customer credentials cannot be retrieved or stored in their system.
For the purpose of safety of data, the following have been described under directions:
- Protection from unauthorized access, alteration, destruction, disclosure, or dissemination of records and date
- Use the technology platform in relation to keep financial information;
- Take necessary action for risk management
- Timely Information System Audit by CISA certified external auditor
In our opinion, it is a very good initiative taken by the RBI to regulate such type of entities. For this, RBI introduced NBFC Account Aggregators guidelines in the year 2016. However, it is not preferable to call them NBFCs as they are not carrying any type of financial activity.
Enterslice can give you overall advisory and assistance in applying for NBFC Account Aggregator license as we are a team of highly skilled & dedicated professionals. We specialize in providing legal consultancy services.