In the investigation involving Paytm Payments Bank Limited (PPBL), the Enforcement Directorate (ED) reportedly found no Foreign Exchange Management Act (FEMA) violations, according to sources. The Reserve Bank of India (RBI) holds the authority to take action against specific instances of non-compliance, as it did on January 31 by prohibiting PPBL from onboarding new customers after February 29 due to persistent non-compliance.
Sources state that the case of PPBL, the banking arm of Paytm, does not involve a scheduled offence under the Prevention of Money Laundering Act (PMLA), thus excluding a money laundering investigation.
The ED focused on financial transactions to assess potential FEMA violations since, without the commission of a crime, there are no ‘proceeds of crime,’ rendering PMLA inapplicable. The agency, responsible for investigating FEMA and PMLA violations, examined over 50 lakh accounts and wallets but found no contravention of foreign exchange rules. Alleged violations primarily related to Know Your Customer (KYC) compliance and other matters, falling under the exclusive purview of the RBI.
ED’s findings, along with specific observations on payment banks (excluding PPBL), third-party application providers, and payment aggregators, have been forwarded to the RBI. The central bank may take appropriate action based on the flagged issues, including perceived ‘slackness’ in adhering to KYC norms, processes for identifying ultimate beneficial ownership, politically exposed persons, KYC adherence for virtual account setup, and the stringent monitoring and periodic reporting of suspect transactions to authorized agencies such as the Financial Intelligence Unit (FIU). The RBI’s potential actions could have broader implications beyond PPBL, affecting other entities involved in financial services and transactions.
As regulatory scrutiny intensifies, these developments highlight the significance of regulatory compliance, particularly in areas such as KYC protocols, for entities operating in the financial sector. The RBI’s role remains pivotal in maintaining the integrity and security of the financial system by addressing non-compliance and potential risks associated with financial transactions.
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