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CENTRE AIMS TO NIP PONZI SCAMS, FINANCIAL SECTOR - Coggle Diagram
CENTRE AIMS TO NIP PONZI SCAMS
Context:
Recently, the President had given his assent to the Banning of Unregulated Deposit Schemes Act, 2019 to protect the interests of depositors and holding deposit-takers accountable.
The Act amended
• The Act amended
↓
RBI Act, 1934
↓
SEBI Act, 1992
↓
Multi-State Cooperative
Societies Act, 2002
Key Highlights of the Act
Objectives:
It provides for a mechanism to ban unregulated deposit schemes and protect the interests of depositors.
Unregulated deposit scheme:
A deposit-taking scheme is defined as unregulated if it is taken for a business purpose and is not registered with the regulators listed in the Act.Currently, nine regulators oversee and regulate various deposit-taking schemes. These include:
• Reserve Bank of India (RBI) – Regulates deposits accepted by NBFCs
• Securities and Exchange Board of India (SEBI) – Regulates Mutual Funds
• Ministry of Corporate Affairs’
• State and union territory governments – Regulates Chit Funds
Deposit Takers:
It defines deposit takers as an individual, a group of individuals, or a company who asks for (solicits), or receives deposits. Banks and entities incorporated under any other law are not included as deposit takers.
Central Database:
It provides for the central government to Ponzi scheme designate an authority to create an online central database for information on deposit takers.
Offences and penalties:
The Act defines three types of offences, and penalties related to them. These offences are:
• Running (advertising, promoting, operating or accepting money for) unregulated deposit schemes,
• Fraudulently defaulting on regulated deposit schemes, and
• Wrongfully inducing depositors to invest in unregulated deposit schemes by willingly falsifying facts.
Ponzi scheme
• The Ponzi scheme is named after a swindler named Charles Ponzi, who orchestrated the first one in 1919.
• A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors.
• It is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.
It is an investment fraud in which clients are promised a large profit at little to no risk.
Definition of Deposits:
It defines a deposit as an amount of money received through an advance, a loan, or in any other form, with a promise to be returned with or without interest.
• It also defines certain amounts which shall not be included in the definition of deposits such as amounts received in the form of loans from relatives and contributions towards capital by partners in any partnership firm.
FINANCIAL SECTOR