Payment and Settlement Systems Act, 2007

GS 3 – ECONOMY

Context: The Reserve Bank of India (RBI) has recently strengthened regulations regarding monetary penalties and compounding of offences under the Payment and Settlement Systems Act, 2007 (PSS Act) to enhance compliance.

What is the PSS Act?

The Payment and Settlement Systems Act, 2007 (PSS Act) is a legislative framework that governs and regulates payment systems in India. It designates the RBI as the primary authority responsible for overseeing and ensuring the smooth functioning of payment mechanisms.

Objectives of the PSS Act

• Establishes a legal framework for regulating payment systems.
• Ensures financial stability, efficiency, and consumer protection in digital transactions.
• Defines legally enforceable netting and settlement finality concepts.

Key Provisions

1. Authorization Requirement
   • No entity can operate a payment system without RBI’s prior authorization.
2. Key Definitions
   • Defines terms such as payment system, payment obligation, payment instruction, and settlement.
3. Regulatory Powers of RBI
   • Monetary Penalties: RBI can impose penalties up to ₹10 lakh or twice the amount involved in contraventions, whichever is higher.
   • Compounding of Offences: RBI can settle non-imprisonable offences without court proceedings.
   • Enforcement Actions: RBI has the authority to take necessary corrective actions against violators.
   • Inspection & Supervision: RBI can inspect and monitor payment systems to ensure compliance.
4. Board for Regulation and Supervision of Payment and Settlement Systems (BPSS)
   • A committee under RBI’s Central Board, responsible for policy-making and oversight of payment systems.

Scope of the PSS Act

• Payment Systems: Regulates credit card, debit card, and money transfer operations.
• Settlement Systems: Covers funds, securities, forex, and derivatives settlement.
• Financial Market Infrastructures (FMIs): Includes Central Counterparties (CCPs), Securities Settlement Systems (SSS), and Trade Repositories (TRs).

Exemptions

The PSS Act does not apply to stock exchanges or clearing corporations established under stock exchanges (Section 34).

Mains Question

Discuss the key provisions of the Payment and Settlement Systems Act, 2007, and analyze its role in ensuring financial stability and consumer protection in India.