Payment and Settlement Systems Act: Section 21 – Duties of a system provider

(1) Every system provider shall disclose to the existing or potential system participants, the terms and conditions including the charges and the limitations of liability under the payment system, supply them with copies of the rules and regulations governing the operation of the payment system, netting arrangements and other relevant documents.

(2) It shall be the duty of every system provider to maintain the standards determined under this Act.

Simplified Explanation

Section 21 of the Payment and Settlement Systems Act, 2007 outlines the responsibilities of a system provider in ensuring transparency, proper governance, and operational standards in the payment system.

Key Provisions of Section 21:

1. Disclosure of Terms and Conditions (Subsection 1):
   • Transparency: Every system provider is required to disclose the terms and conditions governing the payment system to existing and potential system participants. This includes important aspects such as:
     • Charges: The system provider must make clear the fees or charges applicable to the use of the payment system.
     • Limitations of Liability: The terms must also define the limits on the system provider’s liability in case of system failures, disputes, or issues arising from the use of the payment system.
     • Rules and Regulations: System participants should be provided with the rules and regulations that govern the operation of the payment system. These rules may cover a wide range of operational aspects, including security protocols, payment settlement procedures, and dispute resolution mechanisms.
     • Netting Arrangements: If the system includes netting arrangements (where payments between participants are offset), these must be disclosed to all participants.
     • Relevant Documents: Any other relevant documents related to the system’s operation must also be shared to ensure participants understand the rules and their obligations.
2. Maintenance of Standards (Subsection 2):
   • Compliance with Standards: Every system provider is also duty-bound to maintain the standards prescribed under the Payment and Settlement Systems Act. These standards are critical for ensuring that the system operates securely, efficiently, and in a way that is consistent with national monetary and financial policies.
   • Adherence to Regulatory Requirements: The system provider must ensure that the payment system continues to meet the technical and operational standards set by the Reserve Bank of India (RBI), as well as any other applicable regulations.

Purpose of Section 21:

• Ensuring Transparency and Fairness: The disclosure requirements ensure that system participants are fully informed about the terms under which they are participating in the payment system. This fosters transparency and minimizes the potential for disputes related to hidden terms, fees, or liability clauses.
• Protecting Participants’ Interests: By disclosing the terms and conditions, including the charges and liability limitations, the system provider helps to protect the rights of system participants, particularly users of payment services, who may not be fully aware of the underlying rules.
• Promoting Accountability: The duty to maintain prescribed standards ensures that the system provider remains accountable to regulatory standards, safeguarding the integrity and smooth functioning of the payment system.

Implications for System Providers:

• System providers must ensure that all the required documents and conditions are made clear and accessible to participants. Failure to do so could lead to regulatory actions or disputes, especially if participants feel misinformed or wronged.
• By adhering to the prescribed standards, system providers contribute to the overall stability, reliability, and security of the payment system, aligning with national and global best practices in financial regulation.

In Summary:

Section 21 places a significant emphasis on transparency and compliance. System providers are required to disclose critical information to participants, including fees, liabilities, and operational rules. They are also mandated to maintain the standards set forth under the Act, ensuring the payment system’s secure and efficient operation. This is designed to protect participants’ interests, ensure clarity in the operation of payment systems, and promote regulatory compliance.