The Reserve Bank of India has issued a revised framework for imposing monetary penalties and compounding contraventions under the Payment and Settlement Systems Act, 2007 for authorised payment system operators and banks. The updated instructions supersede the January 2020 framework and take effect immediately, aligning enforcement with amendments introduced through the Jan Vishwas (Amendment of Provisions) Act, 2023. The framework sets out the contraventions that may trigger action, including operating a payment system without authorisation or breaching authorisation terms, making false or incomplete statements to the Reserve Bank, failing to furnish required information or documents, prohibited disclosures, shortcomings in storing payment system data in India, and broader non-compliance with the Act or Reserve Bank directions (including net worth requirements, KYC and AML norms, nodal or escrow accounts, and prepaid payment instrument limits). For specified contraventions, the Reserve Bank may impose penalties up to INR 1 million or twice the amount involved where quantifiable, whichever is higher, with an additional continuing penalty of up to INR 25,000 per day. Only material contraventions are to be pursued, assessed by factors such as severity, recurrence over the past five years, transaction impact, amounts involved, and the submission of wrong or incomplete compliance; the process includes a show cause notice, an opportunity for personal hearing if requested, and a speaking order issued by designated committees at central and regional levels. For eligible contraventions, the framework also provides for compounding, including applications submitted before or after proceedings are instituted, with the designated authority to issue an order within six months of receiving a complete application. The compounding amount is determined on the same basis as penalties and may be 25 percent lower than the calculated fine, while repeated contraventions within five years after prior compounding may attract a 50 percent increase, subject to statutory limits. Penalties and compounding amounts are payable within 30 days, with specified consequences for non-payment, and disclosures are required both in the entity’s annual financial statements and via Reserve Bank website press releases (with compounding disclosed after receipt of the compounding amount).
Reserve Bank of India 2025-01-30
Reserve Bank of India revises payment system enforcement framework, setting penalties up to INR 1 million and a compounding process
The Reserve Bank of India has revised its framework for monetary penalties and compounding contraventions under the Payment and Settlement Systems Act, 2007, effective immediately. It outlines contraventions that may trigger penalties, including unauthorized operations and non-compliance with Reserve Bank directions, with penalties up to INR 1 million or more. It also provides for compounding of eligible contraventions, with amounts payable within 30 days and mandatory disclosures in financial statements and Reserve Bank press releases.