The Pension Fund Regulatory and Development Authority (PFRDA) has released new Point of Presence (PoP) Regulations which allows registration of physical and online PoPs. PoPs are similar to distributors of mutual funds.
What are PoPs?
PoPs complete a customer’s onboarding and KYC formalities and accept contributions towards his NPS account. In return for this work, PoPs are paid Rs 125 one-time for subscriber registration. They are also paid a commission of 0.25% on each NPS contribution made offline (through their branches). The minimum commission for each contribution is Rs 20 and the maximum commission is Rs 25,000.
In case of online contributions, the current system is somewhat complex. Subscribers typically make online contributions directly with their Central Record-Keeping Agencies (CRAs) rather than their PoPs. CRAs in the NPS are similar to Registrar and Transfer Agents (RTAs) in mutual funds (such as CAMS and Karvy). Despite being bypassed, the PoP concerned gets a 0.1% commission. However under the new regulations, subscribers can make online contributions through PoPs instead of CRAs. It is unclear what the commission will be in this case but it is likely to be 0.25%, given our reading of the current rules.
Who can be a PoP?
Under the new rules, companies or entities with a minimum paid up capital (including free reserves) of Rs 75 lakh can be PoPs. They must have at least a two-year record of profitability. PoPs which accept physical/offline contributions must have at least 15 branches. Online only PoPs are exempted from this requirement.
A third class of PoPs is those which accept contributions only from employees. However such PoPs must be registered to provide social security benefits under either the EPF Act, 1952; ESI Act, 1948 or the Goods and Services Act, 2017.
Entities applying for PoP registration must not have suffered from a conviction or major penalty from a financial sector regulatory authority or court of law in the past five years.
The new rules are a welcome step towards boosting the NPS online. They take today’s technology and widening internet usage into account. However, it is difficult to see why subscribers will keep contributing online through their PoPs when they can bypass them and go directly to their CRAs (and pay a smaller commission). PoPs will have to make the case for contributions through them by providing value-added services like the ease of payment or better record keeping.