With growing incidents of Ponzi schemes defrauding millions of gullible investors, the Reserve Bank on Monday blamed regulatory vacuum and lack of coordination among various watchdog and investigative agencies for their proliferation. 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 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 protracted 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 book and mete out exemplary punishment,” Mundra said at a workshop organised by the Multi-Disciplinary School of Economic Intelligence here.

CBI Director Anil Sinha had in April said that around ₹80,000 crore of public money was locked up in only those Ponzi schemes which his agency was investigating. Mundra 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.

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