Laws and sections by number or title, due dates, pages, and updates.
Scheduled commercial banks and select financial institutions must detect and report frauds early under a revised master framework. The bank submits individual fraud reports through the XBRL system within three weeks from the date of detection. The bank establishes a Special Committee of the Board for monitoring fraud cases involving amounts of 10 million rupees and above. The bank reports specified loan accounts with early warning signals as red flagged accounts on the CRILC platform. The bank reports instances of theft, robbery, dacoity, and burglary immediately to the central fraud monitoring cell and regional authorities.
What you must do
Key dates
Who is affected
Thresholds
If you do not comply
Ask about this master direction
RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 July 01, 2016 ( Updated as on July 03, 2017 ) The Chairmen & Chief Executive Officers of all Scheduled Commercial Banks (excluding RRBs) and All India Select Financial Institutions Dear Sir, Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs Please refer to our letter DBS.CO.CFMC.BC.No.1/23.04.001/2015-16 dated July 01, 2015 forwarding the Master Circular on 'Frauds – Classification and Reporting'. These Master Directions , being issued under Section 35 A of the Banking Regulation Act, 1949, consolidate and update all the instructions issued on the subject up to June 30, 2016, and have been placed on the web-site of the Reserve Bank of India ( www.rbi.org.in ). Yours faithfully (Manoj Sharma) Chief General Manager Contents INTRODUCTION CHAPTER I 1.1 Short title and commencement 1.2 Applicability 1.3. Purpose CHAPTER II 2.1 General Guidelines 2.2 Classification of Frauds CHAPTER III 3.1. Central Fraud Registry (CFR) 3.2. Reporting of frauds to Reserve Bank of India 3.3. Delays in Reporting of Frauds CHAPTER IV 4.1 Reports to the Board 4.2 Quarterly Review of Frauds 4.3 Annual Review of Frauds 4.4 Special committee of the Board 4.5 Cases of Attempted Fraud CHAPTER V 5. Closure Of Fraud Cases CHAPTER VI 6. Guidelines for Reporting Frauds to Police/CBI CHAPTER VII 7. Cheque Related Frauds, Precautions to be taken and Reporting to RBI and the Police CHAPTER VIII 8.1. Loan Frauds - New Framework 8.2 Objective of the framework 8.3 Early Warning Signals (EWS) and Red Flagged Accounts (RFA) 8.4 Early Detection and reporting 8.5 Staff empowerment 8.6 Role of Auditors 8.7 Incentive for Prompt Reporting 8.8 Bank as a sole lender 8.9 Lending under Consortium or Multiple Banking Arrangements 8.10 Staff Accountability 8.11 Filing Complaints with Law Enforcement Agencies 8.12 Penal measures for fraudulent borrowers CHAPTER IX OTHER INSTRUCTIONS 9.1 Legal Audit of Title Documents in respect of Large Value Loan Accounts 9.2 Sale of Financial Assets of Doubtful Standard / Fraudulent Origin to Securitization Company (SC)/ Reconstruction Company (RC) CHAPTER X Reporting Cases Of Theft, Burglary, Dacoity And Bank Robberies CHAPTER XI Repeal ANNEX I Monthly certificate in respect of submission of fraud cases ANNEX II Early Warning Signals (EWS) ANNEX III List of the circulars repealed, as the contents of the same have been incorporated in the Master Direction
INTRODUCTION In exercise of the powers conferred by section 35 A of the Banking Regulation Act, 1949 the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the directions hereinafter specified.
Chapter I
1.1 Short title and commencement 1.1.1 These directions shall be called the Reserve Bank of India (Frauds classification and reporting by commercial banks and select FIs) directions 2016. 1.1.2 These directions shall come into effect on the day they are placed on the official website of the Reserve Bank of India (RBI).
1.2 Applicability The provisions of these Directions shall apply to scheduled commercial banks (excluding RRBs) and select FIs operating in India
1.3. Purpose These directions are issued with a view to providing a framework to banks enabling them to detect and report frauds early and taking timely consequent actions like reporting to the Investigative agencies so that fraudsters are brought to book early, examining staff accountability and do effective fraud risk management. These directions also aim to enable faster dissemination of information by the Reserve Bank of India (RBI) to banks on the details of frauds, unscrupulous borrowers and related parties, based on banks’ reporting so that necessary safeguards / preventive measures by way of appropriate procedures and internal checks may be introduced and caution exercised while dealing with such parties by banks.
Chapter II
2.1 General Guidelines 2.1.1 The Chairmen and Managing Directors/Chief Executive Officers (CMD/CEOs) of banks must provide focus on the "Fraud Prevention and Management Function" to enable, among others, effective investigation of fraud cases and prompt as well as accurate reporting to appropriate regulatory and law enforcement authorities including Reserve Bank of India. 2.1.2 The fraud risk management, fraud monitoring and fraud investigation function must be owned by the bank's CEO, Audit Committee of the Board and the Special Committee of the Board. 2.1.3 Banks with the approval of their respective Boards, shall frame internal policy for fraud risk management and fraud investigation function, based on the governance standards relating to the ownership of the function and accountability resting on defined and dedicated organizational set up and operating processes. 2.1.4 Banks shall send the Fraud Monitoring Returns 1 (FMR) through the XBRL system , as detailed in para 3.2 below. Banks should specifically nominate an official of the rank of General Manager who will be responsible for submitting all the returns referred to in this circular.
2.2 Classification of Frauds 2.2.1 In order to have uniformity in reporting, frauds have been classified as under, based mainly on the provisions of the Indian Penal Code:
2.2.2 As regards cases under d) and f) above cash shortages resulting from negligence and fraudulent forex transactions involving irregularities / violation of regulations have also to be reported as fraud if the intention to cheat/defraud is suspected or proved. Notwithstanding the above, the following cases shall be treated as fraud and reported accordingly:
Chapter III
3.1. Central Fraud Registry (CFR) A Central Fraud Registry (CFR) based on the Fraud Monitoring Returns, filed by the banks and the select FIs, including the updates thereof, has been made available, for which banks have been given access through user-ids and password. CFR is a web-based and searchable database. The practice of issuing paper based Caution Advice (CA) has since been discontinued. However CAs on frauds including attempted frauds having systemic implication will be issued as and when required. Banks are advised to make full use of the CAs/CFR for timely identification, control, reporting and mitigation of fraud risk. Banks are also advised to put in place proper systems and procedure to ensure that the information available in CA/CFR is made use as a part of the credit risk governance and fraud risk management.
3.2. Reporting of frauds to Reserve Bank of India 3.2.1 Banks need to furnish Fraud Monitoring Return (FMR) in individual fraud cases, irrespective of the amount involved, to RBI electronically using FMR Application in XBRL System supplied to them within three weeks from the date of detection. 3.2.2 A monthly certificate, as per Annex – I , (mentioning that soft copy of all the FMRs have been submitted to RBI) is to be submitted by the bank to CFMC, Bengaluru with a copy to the respective SSM of the bank, within seven days from the end of the month. 3.2.3 Fraud reports should also be submitted in cases where central investigating agencies have initiated criminal proceedings suo moto and/or where the Reserve Bank has directed that such cases be reported as frauds. 3.2.4. Banks may also report frauds perpetrated in their subsidiaries and affiliates/joint ventures in FMR format in hard copy only . In case the subsidiary/ affiliate/joint venture of the bank is an entity which is regulated by Reserve Bank of India and is independently required to report the cases of fraud to RBI in terms of guidelines applicable to that subsidiary/affiliate/joint venture, the parent bank need not furnish the hard copy of the FMR statement in respect of fraud cases detected at such subsidiary/affiliate/joint venture. 3.2.5 Banks (other than foreign banks) having overseas branches/offices should report all frauds perpetrated at such branches/offices also to RBI. 3.2.6 In addition to the FMR, banks are required to furnish a Flash Report (FR) for frauds involving amounts of ₹50 million and above within a week of such frauds coming to the notice of the bank’s head office. The FR is to be furnished in the form of a DO letter addressed to the PCGM / CGM-in-Charge, DBS, RBI, Central Office, Mumbai with a copy to CFMC, Bengaluru. The FR, inter alia, should include amount involved, nature of fraud, modus operandi in brief, name of the branch/ office, names of parties involved, their constitution, names of proprietors / partners and directors, names of officials involved and lodging of complaint with police/CBI. 3.2.7 Further, banks are also required to furnish developments in the fraud case through the FMR Update Application supplied to them in XBRL system. 3.2.8 It is observed while scrutinizing FMR returns from the banks, that certain vital fields in the returns are left blank. As the complete particulars on frauds perpetrated in the banks are vital for monitoring and supervisory purposes and dissemination of information through Caution Advice / Central Fraud Registry (CFR), banks should ensure that the data furnished are complete/accurate and up-to-date. Incidentally, if no data is to be provided in respect of any of the items, or if details of any of the items are not available at the time of reporting of FMR return, the bank may indicate as “no particulars to be reported” or “details not available at present” etc. In such a situation, the banks have to collect the data and report the details invariably through FMR Update Application . 3.2.9 Central Fraud Monitoring Cell (CFMC), Department of Banking Supervision, Central Office located at Bengaluru will have a Record of officers of all banks/Financial Institutions (FI) responsible for reporting of Frauds etc. All banks/Financial Institutions should furnish to Department of Banking Supervision, Central Fraud Monitoring Cell, Bengaluru any changes in the names of officials that will be necessary for inclusion in the Record .
