Eligibility Norms and Registration of Intermediaries (Sections 26 and 27)

Control over entry is the first and most effective tool of any financial regulator. By deciding who may manage, record or collect pension money, PFRDA can keep out entities that lack the capital, competence or integrity to be trusted with subscribers' savings. Section 26 of the PFRDA Act requires key intermediaries to meet eligibility norms, and Section 27 makes a certificate of registration a precondition for every intermediary's activity.

1. Eligibility Norms (Section 26)

The section names the three intermediaries at the heart of the system and lists the factors the regulations must address:

• Minimum capital: a financial cushion to absorb losses, invest in systems and meet obligations.
• Track record, including the ability to provide guaranteed returns: this links to the minimum assured return schemes contemplated by Section 20(2), which require a fund able to back a guarantee.
• Costs and fees: an applicant's cost structure affects subscribers' returns over decades.
• Geographical reach and customer base: particularly relevant to points of presence, whose purpose is to make the NPS accessible.
• Information technology capability: essential for the CRA and for electronic connectivity across the system.
• Human resources: qualified personnel, especially investment and risk professionals for pension funds.
• Other matters: such as fit and proper status of the applicant, its promoters and directors, which PFRDA's regulations require.

2. Registration Mandatory (Section 27(1))

• The rule: no intermediary, including a pension fund or a point of presence to the extent regulated under the Act, may commence any activity relating to a pension fund except under and in accordance with a certificate of registration granted by the Authority under the Act and the regulations.
• Transitional protection: an intermediary that was appointed by the Interim PFRDA before the Act's commencement could continue for six months from commencement, or, if it applied for registration within that time, until its application was disposed of. This ensured that the system did not stop on 1 February 2014.
• "To the extent regulated": a bank that acts as a point of presence is registered with PFRDA only for its NPS activity; its banking business remains under the RBI.

3. Application and Grant (Section 27(2) and (3))

• Application: in the form and manner, and with the fees, determined by regulations.
• Grant: the Authority may, after considering the application, grant a certificate subject to such terms and conditions as it may specify.
• Conditions: commonly relate to capital maintenance, governance, conflicts of interest, systems, reporting, charges, grievance redressal and compliance with directions. Breach of a condition is a violation in itself.
• Specific registrations: the CRA (Section 21), points of presence (Section 22) and pension funds (Section 23) are all registered under Section 27(3); each has its own regulations.

4. Suspension and Cancellation (Section 27(4))

• Power: the Authority may suspend or cancel a certificate of registration, in the manner determined by regulations.
• Hearing: no certificate may be suspended or cancelled unless the person concerned has been given a reasonable opportunity of being heard.
• Grounds: typically, breach of the Act, regulations or conditions of registration; ceasing to satisfy eligibility norms; fraud or misrepresentation in obtaining registration; and conduct prejudicial to subscribers.
• Consequences: the intermediary must stop the regulated activity; subscribers' accounts and assets are transferred to another intermediary; and, for the CRA, its regulated assets pass to the Authority under Section 21(3).

5. Penalties for Unregistered Activity and Breach of Conditions

• Acting without registration (Section 28(1)(a)): a penalty of one lakh rupees for each day of default or one crore rupees, whichever is less.
• Breach of conditions of registration (Section 28(1)(b)): the same penalty, one lakh rupees a day or one crore rupees, whichever is less.
• Cease and desist: the Authority may also order an unregistered entity to cease and desist under Section 18.
• Prosecution: contravention of the Act may be an offence under Section 32.

6. Appeal

A person aggrieved by an order refusing, suspending or cancelling registration may appeal to the Securities Appellate Tribunal under Section 36, and on a question of law to the Supreme Court under Section 38. The Tribunal examines whether the grounds were established, whether a hearing was given, and whether the action was proportionate.

7. Questions Arising

Can PFRDA refuse registration to an applicant who meets every specified norm?

The grant is discretionary in form ("may grant"), but the discretion must be exercised on relevant considerations and for reasons. A refusal on grounds unrelated to the Act's purposes, or without considering the application, would be arbitrary and open to appeal.

Does registration with SEBI or the RBI exempt an entity from PFRDA registration?

No. Registration under other financial laws relates to other activities. An entity that wishes to act as an NPS intermediary needs PFRDA registration for that activity, although PFRDA may take its existing regulated status into account.

8. Related Topics and Provisions

• Central recordkeeping agency (Section 21)
• Pension funds and the NPS Trust (Section 23)
• Other intermediaries
• Penalty for failures (Section 28)
• Appeal to the Securities Appellate Tribunal (Section 36)