RBI tightens rules: ₹10 lakh fine, daily penalties for payment system violations

The Reserve Bank of India (RBI) on Thursday introduced a revised framework for imposing monetary penalties and compounding offences under the Payment and Settlement Systems Act, 2007.

Under the revised guidelines, penalties can be imposed for contraventions such as operating a payment system without authorisation, failure to furnish required information, non-compliance with RBI directions, and violations of Know Your Customer (KYC) and Anti-Money Laundering (AML) norms.

The RBI can impose fines of up to ₹10 lakh or twice the amount involved in the contravention, whichever is higher.

“Where such contravention or default is a continuing one, a further penalty up to ₹25,000/- for every day after the first during which the contravention or default continues, can also be imposed,” the central bank said in its revised framework.

The framework also details the procedure for imposing penalties, including issuing show-cause notices and providing personal hearing opportunities.

The procedure allows for the settlement of certain violations without criminal proceedings.

Entities seeking compounding must submit an application along with the necessary documentation. The compounding amount maybe 25% lower than the corresponding monetary penalty and must be paid within 30 days of the order.

Failure to comply with the monetary penalty or compounding amount within the stipulated time may result in further legal proceedings, including criminal action.

A committee of senior RBI officials will oversee penalty imposition and compounding decisions.

"The designated authority for imposing monetary penalty and compounding of contraventions shall be a (i) Committee comprising three Executive Directors in respect of cases handled by Central Office of Enforcement Department and (ii) Committee comprising Regional Director and two senior officers at the Regional Office of Enforcement Department," the RBI notification reads.

RBI also mandated that entities disclose monetary penalties in their annual financial statements and that details of enforcement actions be published on the central bank’s website.

The revised framework takes effect immediately, RBI said.

The central bank's enforcement actions come amid increasing scrutiny of India’s payments industry, which has witnessed significant growth with the rise of digital wallets, prepaid payment instruments, and real-time payment systems like UPI.