In the past week, a lot has been written about the Paytm-RBI issue, and the virtual bank’s compliance challenges. Since there’s a lot of noise around this case, we are here to break it down.
On January 31st, the Reserve Bank of India ordered Paytm Payments Banks, a restricted bank and subsidiary of Paytm to not take further deposits, carry out credit transactions, or top-up on any customer’s accounts. Paytm Payments bank is an entity that can take deposits, but not lend.
RBI also prohibits the bank from using prepaid methods, wallets, and cards for paying tolls beyond February 29. The RBI has cited sections 35A of the Banking Regulation Act, 1949, and mentioned that the Nodal Accounts of One97 Communications and Paytm Payments Services Ltd. are to be terminated.
This is what has happened so far. In the latter part of the article. Finsmart Accounting – the leading accounting and compliance services provider in India – will share everything about the Paytm compliance fiasco, and also share key takeaways on compliance for modern businesses. Let’s start!
What exactly led to the Paytm probe by RBI?
RBI had been frequently raising issues against the bank. According to the RBI, due to “persistent non-compliance and continued material supervisory concerns in the bank” the bank was compelled to take action.
Here are a few important courses of action:
– There have been money laundering concerns and questionable dealings of hundreds of crores of rupees between Paytm and its banking arm.
– Paytm Bank has lakhs of non-KYC-compliant accounts and thousands of cases where single PANs were used to open multiple accounts.
– There have also been instances where the total value of the transactions ran into crores, much beyond the regulatory limits.
RBI detected certain violations back in 2021. Although the bank was directed to address these issues, they continued to remain. The compliances submitted by Paytm were found incomplete and false, sources said. Here’s what followed:
– In March 2022, RBI imposed restrictions on Paytm Payments Bank to stop onboarding new customers and to appoint an external audit firm for a detailed audit.
– Many cases of frozen accounts and wallets have been found. These were the ones being used to commit digital fraud.
– In September 2022, the Enforcement Directorate (ED) conducted raids on the Paytm Payment Bank and One97 Communications premises.
– After several cases of debtors ending their lives came to light from different states, the ED initiated a probe under the Prevention of Money Laundering Act (PMLA).
Allegedly, illegal digital loan companies sourced the personal data of the borrower at the time of downloading these apps.
Key Takeaways on Compliance for Modern Businesses:
The recent decision by the Reserve Bank of India not only aims to bring businesses’ focus on regulatory compliance but also serves as a learning for firms in India and globally on several other aspects.
Here are the key takeaways from Paytm RBI issue:
– Prioritize regulatory compliance: It is non-negotiable in sectors like finance. It is not just the fintech industry, but any organization dealing with money and finance must adhere to all guidelines set by their regulatory bodies. To ensure this, regularly assessing and updating internal policies are a must. Firms must align with the regulations and make amends when something is being flagged. A dedicated compliance team to monitor and maintain adherence has to be brought in place.
– Proactively approach risk management: The recent fate of Paytm is also a reminder for organizations to identify and mitigate potential risks before they become unamendable. A comprehensive risk management that includes risk assessments and scenario planning should be adopted to address unforeseen challenges.
– Operational transparency: Transparency within the organization and with the regulatory bodies is key in building trust with all parties involved. Organizations dealing with financial data and finances must maintain clear communication about offerings, terms of use, and any changes. It helps manage regulatory environments effectively.
– Relations with investors: They closely monitor regulatory compliance and transparency in operations. When issues like the one with Paytm occur, it shakes the faith of the investors. It is essential to keep the investors informed about regulatory developments, compliance efforts, and risk mitigation strategies.
Compliance is key not just in fintechs, but across industries that deal in finances and financial data. Besides staying compliant, the Paytm case also focuses on the importance of being ethical in the practices to not fall under the negative lens of the regulatory body. This is also true if you are outsourcing your practices like accounting. Beware of who you deal with and make sure to check if they have enough compliance in place.
If you are looking for a trustable partner in India, get in touch with our experts at sales@finsmartaccounting.com
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Founder & Director
Shalaka Joshi, a Chartered Accountant passionate about outsourcing and problem-solving, brings over 20 years of extensive experience in accounting, payroll, and MIS reporting to her professional endeavors
