The Reserve Bank has tightened rules for imposing monetary penalties and compounding offences under the Payment and Settlement Systems Act (PSS Act) in a revised Framework.

About the Revised Framework

• Aim: To streamline enforcement actions, ensuring compliance and accountability among payment system operators and banks.
• Only material contraventions will be taken up for enforcement action in the form of imposition of monetary penalty or compounding of offences.
• Monetary Penalty: The framework provides procedures for imposing monetary penalties and determining the amount of penalty.
  • The RBI can impose a penalty not exceeding Rs 10 lakh or twice the amount involved in whichever is more, in case of contraventions/defaults. 
    • The penalty amount was raised from a maximum of Rs 5 lakh following the enactment of the Jan Vishwas (Amendment of Provisions) Act, 2023, entering into force on January 22, 2024.
  • The quantum of penalty is determined based on proportionality, financial impact, and intent behind the contravention.
• Repeat offence Penalty: In cases where such contravention or default continues,  a further penalty of up to Rs 25,000/ day after the first, will be levied.
• Compounding of Offence: The PSS Act under Section 31, empowers  an RBI officer duly authorised to compound contraventions, excluding offences punishable with imprisonment.
  • Offences: Offences such as unauthorized disclosures, failure to submit documents, and non-compliance with regulatory directives attract compounding proceeding.
  • Compounding allows violators to settle regulatory breaches without undergoing prolonged legal proceedings.

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Offences Under the PSS Act, 2007

• Section 26 of the Payment and Settlement Systems (PSS) Act, 2007 deals with penalties that are warranted for violations of the Act affecting the integrity and security of India’s financial ecosystem,
  • Unauthorised Operation: Operating a payment system without authorization or failing to comply with authorization conditions.
  • False Information: Providing false statements or omitting crucial information in applications or returns.
  • Non Disclosure: Failing to submit required statements, information, or documents to the RBI.
  • Compromised on Information Security: Unauthorized disclosure of prohibited information.
  • Disobeyance: Non-compliance with RBI directions, including failure to pay imposed penalties.
  • Violations related to data storage, KYC/AML norms, and escrow account maintenance.

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