RBI blames regulatory vacuum for rising fraudulent ponzi schemes

Admin   |   10 June, 2015   |   629   |   3980

Mumbai: With growing incidents of ponzi schemes defrauding millions of gullible investors, the Reserve Bank today blamed regulatory vacuum and lack of coordination among various watchdog and investigative agencies for them.

Ponzi schemes are fraudulent investment schemes, wherein people are promised high returns without having to assume commensurate level of risks.

"One important thing we have seen in recent deliberations is that many ponzi schemes are falling under a regulatory vacuum, as there is no clarity on whose regulatory turf it falls in, and therefore remains a grey area," said RBI deputy governor SS Mundra.

He also partly blamed the institution-specific regulations in the country for it rather than the activity-based regulation as prevalent in other nations.

"This leaves the scope of some activities falling on the fringe, to be left out of the regulatory radar," Mundra said, adding that because enforcement agencies do not see the problem until it becomes an issue and the number of complaints increase.

Even if such unauthorised activities come to the fore, lack of coordinated efforts from various investigative agencies and protected legal proceedings fail to create enough deterrence for the fraudsters or the potential fraudsters, Mundra added.

"Hence, it is essential that investigative agencies follow a coordinated approach to quickly get to the bottom of the problem and bring the culprits to the book and meet out an exemplary punishment," Mundra said at a workshop on ponzi schemes organised by Multi-Disciplinary School of Economic Intelligence (MDSEI) at the NACEN (National Academy of Customs, Excise and Narcotics) in Mumbai.

CBI director Anil Sinha had in April said that around Rs 80,000 crore of public money was locked up in only those ponzi scams which his agency was investigating.

Mundra further said that greed, financial illiteracy and non-availability of a formal channel of financial system are the three major reasons for the public to fall into the trap of fraudsters running such illegal financial activities.

Mundra said unauthorised collection of deposits happens in tier II & III cities and so it is important that the role of the state and local administrative machinery assume significant importance.

"There is a need to establish an effective two-way communication between the state machinery and the regulators whereby either party should immediately inform the other about any illegal, unauthorised and suspicious financial activities as soon as it comes to their notice," he said.

Mundra also emphasised on making the state-level bankers co-ordination committee (SLCC) forum more active and effective.

According to him, RBI is conducting training and skill building programmes for the police in its efforts to improve access to formal banking channels to the unbanked population, apart from running customer awareness programmes to curb such unauthorised financial activities.

Echoing similar views, Maharashtra anti-corruption bureau director-general Praveen Dixit said: "There is a plethora of agencies at the state and Central levels as also in banking sector, but except for these kinds of seminars there is a hardly any occasion where all these agencies interact on a regular basis to tackle this menace."

He asked all the law enforcing agencies to be more proactive rather than being reactive to these kinds of unauthorised activities.

Dixit also suggested that the government make stronger laws like in the US where if a person is caught in a ponzi scheme, his assets are seized and within no time a heavy fine is imposed on him, including seizure of his properties.

"Why can't we have the same type of strategy so that those who indulge in this kind of activity are not only arrested, but their property is seized and are also equally fined,' he said, adding that such actions will serve as deterrent.