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Paytm Payments Bank Faces RBI Action Over Due Diligence Lapses

The Reserve Bank of India (RBI) has taken action against Paytm Payments Bank due to lapses in its internal risk management, particularly concerning the identification and monitoring of politically exposed persons (PEPs), according to reports.

Regulatory Action

On January 31, the RBI imposed restrictions on Paytm Payments Bank, prohibiting it from accepting deposits, processing top-up transactions, or offering services like UPI facilities and funds transfer starting February 29, 2024. The central bank cited “persistent non-compliances” as the reason for these measures.

Audit Findings

A Moneycontrol report reveals that an audit of Paytm Payments Bank’s risk management system by the RBI uncovered deficiencies in the due diligence process for onboarding PEPs. The bank allegedly lacked adequate systems for monitoring PEPs and failed to file suspicious transaction reports (STRs) with the financial intelligence unit as required.

Paytm’s Response

In response to the allegations, a spokesperson for Paytm Payments Bank refuted the claims, stating that the concerns regarding PEP monitoring were “highly speculative.” The spokesperson emphasized the bank’s commitment to compliance with regulatory guidelines and asserted the adequacy of its systems and processes.

PEP Definition and KYC Requirements

The RBI defines PEPs as individuals who hold or have held prominent public positions in foreign countries. Due to the elevated risk of money laundering, accounts associated with PEPs are subject to additional know your customer (KYC) requirements.

Regulatory Engagement

Amid the ongoing situation, the RBI plans to issue FAQs on the matter next week. Additionally, discussions are scheduled with the National Highways Authority of India (NHAI) and the National Payments Corporation of India (NPCI) to finalize plans for migrating merchants and consumers from the Paytm platform.

Conclusion

The RBI’s action against Paytm Payments Bank underscores the importance of robust risk management practices, particularly concerning PEPs. As regulatory scrutiny intensifies, financial institutions must prioritize compliance to maintain the integrity and stability of the banking system.

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