Regulations in place
Protecting consumers and companies
Regulations and standards are part and parcel of doing business
around the globe. Technology can help India Inc comply with these. We take a
look at how CIOs are tackling this issue. by Deepali Gupta
Regulations are meant to guard the interests of consumers and to reassure associates
across borders that an industry complies with standard, acceptable norms. This
becomes pertinent in light of the trend towards global and local mergers. In
the banking industry for example, analysts at IBM predict that all Indian banks
will consolidate into three or four large groups. For the sake of smooth mergers
it is important for every bank to be aligned in the same direction.
To ensure that an enterprise is complying,
with regulations, the company
has to find a controlled
Ernst and Young
The rationale behind regulations
Regulations are also put in place to mitigate threats posed by any one element
to related components. In the business world, this process enforces open governance
and ensures that risk management measures are in place within organisations.
It also prevents any domino effect when a business fails (for instance, if a
rural bank fails, people may pull out their money from other rural banks, causing
them to fail as well).
As business depends on IT and the data stored, analysed and managed by the IT
team, the onus of ensuring regulatory compliance falls upon the IT Head or CIO's
shoulders. A lot of today's regulations and standards pertain to data security
and integrity. So, let's start with what Indian law sets down as mandatory.
Acting it out
Regulations pertaining to IT and information integrity are still developing
in India. As of now MNCs impose a foreign rules or standards upon their Indian
"What a company needs to comply with in India is split over many Acts and
Regulations," says Sunil Chandiramani, Partner, Ernst and Young. Depending
on a company's sphere of operations, the regulations that it needs to comply
with can be found in Acts such as the Excise Act, the Companies Act, the PF
it is a long list. Identifying what is applicable to an organisation
and what is not becomes a difficult task. Worse, the Indian IT Act 2000 does
not clearly spell out the regulations concerning IT management or security.
The Indian IT Act 2000 broadly dictates that an e-transaction should have a
digital signature to be accepted in court. "The Act has no regulations
for data protection, and there is no corporate governance act in India,"
says Vivek Kathpalia, Associate, Nishith Desai Associates.
Listed companies have to abide by the requirements listed by Stock Exchange
Board of India (SEBI). For the greater part, SEBI regulations are built on the
law, and attempt only to ensure that listed organisations are within the parameters
of the law. SEBI's Clause 49 refers to good corporate governance. The disclosure
norms issued by SEBI attempt to ensure that the confidentiality of customer
data is maintained. However, the implementation of these regulations is not
audited by a third-party and the compliance is left to the company. "To
ensure the enterprise is complying, the company will have to find a controlled
self-assessment tool," says Chandiramani.
A possible solution would be to deploy corporate reporting tools that must be
intelligently populated with knowledge. A number of corporate governance tools
that are available in the market can be used to generate intelligent reports.
The catch, however, is that these tools need clean and sizeable data, a resource
that few Indian companies possess.
The Reserve Bank of India imposes certain restrictions upon Indian Banks. While
many regulations govern the way a bank is set up there are a number that involve
complex reports that have to be submitted to the RBI at regular intervals. For
example, a bank's balance sheet must always reflect adequate capital. As far
as IT is concerned, the RBI has set up guidelines for network encryption and
risk management. At present this is still a recommendation, it may become compulsory
in the long run. If the banking system is online, and a set of best practices
is in place, a number of Business Intelligence tools are available to help a
bank with this kind of reporting, and running audits becomes extremely easy.
Unfortunately, the majority of Indian banks are yet to go live with core banking
implementations. "That's where most banks are investing time and money,"
says Ravi Trivedi, Partner Financial Services, Strategy & Technology Consulting,
IBM Business Consulting Services, India. In a nutshell, the regulations imposed
by Indian authorities only enforce the bare essentials. That is why BPO outfits,
MNCs and conglomerates have aligned themselves to foreign standards to gain
the confidence of their international partners.
Most banks are investing time and money
in core banking applications
Ravi Trivedi, Partner, Financial Services, Strategy & Technology
Consulting, IBM Business Consulting Services, India
The UK Data Protection Act (DPA) and EU-US Safe Harbor (SH)
are accepted in many countries. The DPA is applicable in UK and it is also accepted
in the US. SH was approved by the EU in 2000 to smooth business between US companies
and EU markets, without legal repercussions in either territory. The principles
of both the DPA and SH are:
- The individual must be aware of the purpose and
use for which personal information is collected.
- There must be documented evidence of customer consent
before such information is shared with third-parties.
- Individuals must have access to information pertaining
to them so that they can update it.
- Sufficient security precautions must be taken to
ensure that the information provided to the organisation is not lost, tampered
with or misused.
- Personal data must not be transferred outside the
EU that unless a country can ensure an adequate level of protection of the
- Should there be any problem, a mechanism for addressing
complaints must be in place.
Apart from this, there are regulations pertaining to specific industry verticals.
Health Insurance Portability and Accountability Act (HIPAA) is a globally accepted
norm for protecting patient information. Its aim is to standardise the way patient
information is collected, obtain higher continuity of health insurance, prevent
frauds and abuse of the system as well as maintain the confidentiality of individually
identifiable records. BPO companies hosting medical information such as Wipro
Spectramind have to comply with HIPAA.
For financial services companies there are the Sarbanes-Oxley Act and the
Gramm, Leach, Bliley Financial Modernization Act of 1999. These acts enable
commerce without barriers while ensuring protection of privacy and personal
rights of individuals who are involved with the system. Encryption and other
security measures are needed and record maintenance should be impeccable. The
recommendations made by these Acts mostly pertain to practices that need to
For security compliance, there are a number of standards such as BS7799 or ISO17799.
The 7799s cover information security risk management, information security governance,
physical security, IT security and business continuity. To test the robustness
of IT service delivery, and to assist with corporate IT governance a standard
called BS15000 has been built atop the IT Information Library (ITIL) framework.
SAS 70, which still in it's teething stages, is another standard that is aimed
primarily at the financial services industry seeking as it does to validate
control policies and procedures. It defines Type I and Type II reporting. Type
one mandates an external auditor's opinion and a description of existing controls
while Type II adds the auditor's testing procedure to the list.
For these regulations there are few third-party auditors and most companies
allow their partners abroad to inspect their premises and the measures taken
to comply with these. A third-party audit may be a better investment as it can
be used for all clients, but auditors are few, and auditing is expensive. So
apart from the widely accepted BS7799, companies that certify for any of the
other standards are hard to find in India.
You may perhaps have noticed, that India does not have many regulations in sectors
other than banking and finance. Therefore, the only companies that have to comply
with standards right off the bat are BPO outfits, MNCs and service companies.
Our next cover story will look at the challenges faced and methods adopted by
BPO companies as they attempt to comply with regulations. As for the banking
industry, there are several mandates that IT can help them comply with.
RBI sets the pace
As Ravi Trivedi, Partner - Financial Services Sector, IBM Business Consulting
Services says, "The RBI makes recommendations that have to be treated as
regulations." This means that Indian banks need to look at norms such as
Basel II to manage Credit, Market, Operational and Settlement risk. Centralised
banking applications as well as data warehousing solutions can help with data
analysis and issue alerts when a bank's transactions cross the RTGS (Real-Time
Gross Settlement) limits, or when it fails to comply with any other pre-set
A number of Indian banks are considering solutions to address anti-money laundering
regulations. These solutions are trained to track the movement of money, and
they alert the management of any suspicious transactions. The order of activities
for functional anti-money laundering solutions is--data cleaning, alerts, investigation
(done by means of ranking based upon a series of parameters), discovery (uses
an ad-hoc query analysis to discover new testing parameters), and identifying
For now banks are fulfilling the bare requirements that have been mandated by
regulatory authorities. Banks are not investing heavily in intelligent solutions
because most of these products require a sizeable amount of clean data. For
Indian PSU banks the process of converting their existing data into usable knowledge
will take time and effort. This is perhaps why Jitendra Jethanandani, Analyst-Software
Infrastructure Asia Pacific, Gartner, says, "The majority of the Indian
banking industry is not ready for BI, and probably will not be for another year."
An attempt to centralise data is displayed in the Credit Information Bureau
(India) Limited (CIBIL) initiative. India does not have any citizen database
equivalent to the American social security system. Bank frauds, particularly
when loans and credit card borrowings are concerned, become possible in such
an environment. RBI has now mandated the sharing of all banking information
with CIBIL. CIBIL, based on this information, has created a system that records
the credit history of each individual. Banks subscribing to this facility can
use this database to check on the credit status of a customer when they apply
for a specific service. The solution met with some conflict with the Privacy
Act, but that has been cleared now, and according to Trivedi, the database will
prove to be vital for risk management in the future.
The Future of indian regulations
Although the amendment in the Evidence Act is a step
forward, the government needs to add data protection clauses to the IT
Vivek Kathpalia, Associate, Nishith Desai Associates
Anantha Sayana, General Manager of Larsen & Toubro Infotech
Limited said that regulations always follow the industry trend. Hopefully, the
time lag for Indian regulations to become active will not be too long. The need
for Indian regulations is pressing, even as CIOs, and companies align themselves
to universally accepted norms. According to Chandiramani weak laws are a major
deterrent for FDI, global business and the establishment of research and development
parks in the pharmaceutical industry.
Kathpalia believes that although the amendment in the Evidence Act is a step
forward, the government needs to add data protection clauses to the IT Act.
In fact Kathpalia predicts that eventually Media, IT and communications will
have to be controlled by a single regulator. Till then the CIO has to increase
his or her interaction with other business personnel, to identify the regulations
IT can help with, and implement solutions to keep the organisation clean.
Deepali Gupta can be reached at email@example.com