Context:
Recently, the Reserve Bank of India (RBI) has strengthened its regulatory approach under the Payment and Settlement Systems Act, 2007 (PSS Act), enhancing the penalties for non-compliance.

Key Contraventions under the PSS Act:

The Reserve Bank of India (RBI) has outlined several critical contraventions under the updated Payment and Settlement Systems (PSS) Act. These include operating payment systems without proper authorization, disclosing prohibited information, and failing to pay penalties within the prescribed period. Such violations will now attract significant fines under the new regulatory framework.

·        Focus on Material Contraventions: The RBI's revised framework emphasizes enforcement actions for material contraventions. This ensures that penalties are only imposed in cases where the violation is substantial, ensuring that fines are proportional to the severity of the offence. This approach encourages greater accountability in the payment systems sector.

·        Penalties and Daily Fines: Penalties for violations under the revised rules can now amount to up to ₹10 lakh or twice the value of the contravention, whichever is higher. Furthermore, if the violation persists beyond the first day, an additional penalty of ₹25,000 per day can be levied until the issue is resolved.

·        Legal Authority for Penalty Imposition: RBI officials authorized under the PSS Act have the legal authority to impose penalties or compound offences that are not punishable by imprisonment. This streamlined process aims to ensure efficient enforcement while maintaining a fair, transparent regulatory framework for payment system operators.

About Payment System" under the PSS Act, 2007:

Under Section 2(1)(i) of the Payment and Settlement Systems (PSS) Act, 2007, a "payment system" is defined as any system that enables payments between a payer and a beneficiary.

·        This includes systems that facilitate clearing, payment, or settlement services, or all of these services together. Notably, the Act excludes stock exchanges and clearing corporations set up under stock exchanges, as specified in Section 34.

Inclusions in Payment System

The definition of a "payment system" further encompasses various operations, such as credit card, debit card, smart card operations, and money transfer services, or similar functions that enable the transfer of funds from one party to another.

System Providers
Entities that operate payment systems are referred to as "system providers." This includes all organizations that facilitate clearing, settlement, or payment operations, as well as those handling money transfer systems or card-based payment systems.

These system providers are responsible for the smooth functioning of payment processes within the defined systems.

About PSS Act, 2007:

The Payment and Settlement Systems (PSS) Act, 2007 was enacted to provide a comprehensive framework for the regulation and supervision of payment systems in India.

·        It designates the Reserve Bank of India (RBI) as the central authority responsible for overseeing the functioning and safety of payment systems across the country.