SUMMARY
The banking regulator’s audit of Paytm Payment Bank’s risk management system revealed several deficiencies, especially in the due diligence process for onboarding politically exposed individuals
The payments bank not only lacked adequate systems for monitoring PEPs but also failed to appropriately file STRs with the government’s Financial Intelligence Unit
Meanwhile, the central bank is now likely to issue a clarification on the ongoing crisis at Paytm considering the fintech major’s large user base
Paytm Payments Bank’s failure to heed to the Reserve Bank of India’s (RBI) warnings for improving the gaps in its internal risk management, especially in flagging transactions involving politically exposed persons (PEPs), reportedly led the central bank to take action against the payments bank.
It is pertinent to note that the RBI on January 31 barred Paytm Payments Bank from taking deposits, credits, or processing top-up transactions in its customer accounts for ‘persistent non-compliances’. The bank has also been barred from processing other banking services like UPI facilities and funds transfer from February 29, 2024.
As per a Moneycontrol report, the banking regulator’s audit of Paytm Payment Bank’s risk management system exposed several discrepancies, especially in the due diligence process for onboarding politically exposed individuals.
The payments bank lacked adequate systems for monitoring PEPs and failed to properly file suspicious transaction reports (STRs) with the financial intelligence unit, the report said citing sources.
However, a Paytm Payments Bank spokesperson rejected the report, saying any concerns regarding monitoring of PEPs are “highly speculative”.
“We have adequate systems and processes to comply with regulatory guidelines. Our team is dedicated to ensuring that every aspect of our transaction reporting and account surveillance adheres to the strictest standards of compliance,” the spokesperson told Inc42.
The RBI currently defines PEPs as “individuals who are or have been entrusted with prominent public functions by a foreign country, including the Heads of States/Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials”.
There are additional know your customer (KYC) requirements for accounts associated with PEPs due to the risk of money laundering.
Meanwhile, amid the ongoing crisis at Paytm, the central bank will issue FAQs on the matter next week.
Further, the central bank is also planning to meet the National Highways Authority of India (NHAI) and the National Payments Corporation of India (NPCI) next week, to finalise modalities for migrating merchants and consumers from the platform.
