Ponzi schemes, now no more..! LokSabha sets mechanisms protecting small investors

New Delhi, February 13: The LokSabha on Wednesday passed the Banning of Unregulated Deposit Schemes Bill, 2018 protecting the gullible investors from ponzi schemes, which lures investors and pays profits to earlier investors by using funds obtained from more recent investors.

 

 

The Banning of Unregulated Deposit Schemes Bill, 2018, seeks to put in place a mechanism by which such depositors can be compensated. It has incorporated recommendations of the Standing Committee on Finance.

"The Government has worked quickly to put an end to such unauthorised deposit schemes. We have ensured that no loopholes are left by using great legal acumen while drafting the Bill. I want to assure the House that while drafting the rules we will ensure there is no loophole," Goyal said adding that out of the total 978 cases of unauthorised deposit schemes, 326 are from West Bengal, which is more than one-third of the total such schemes.

The Government expects the bill will effectively tackle the menace of illicit deposit-taking activities, and prevent such schemes from duping the poor and gullible people of their hard earned savings.

Ponzi schemes require an initial investment and promise above average returns. They use vague verbal guises such as "hedge futures trading", "high-yield investment programs", or "offshore investment" to describe their income strategy. It is common for the operator to take advantage of a lack of investor knowledge or competence, or sometimes claim to use a proprietary, secret investment strategy in order to avoid giving information about the scheme.

Introduced in Lok Sabha by the Minister of State for Finance, Mr. Shiv Pratap Shukla on July 18, 2018, the Bill provides for a mechanism to ban unregulated deposit schemes and protect the interests of small depositors. It also seeks to amend three laws, including the Reserve Bank of India Act, 1934 and the Securities and Exchange Board of India Act, 1992.

The Bill further provides for the central government to designate an authority to create an online central database for information on deposit takers. All deposit takers will be required to inform the database authority about their business. The Competent Authority will be required to share all information on unregulated deposits with the authority.

Original bill here : Download Document