The Payment and Settlement Systems Act, 2007 (PSS Act) is a key legislation in India that regulates and supervises payment systems within the country. It empowers the Reserve Bank of India (RBI) as the designated authority to manage and regulate these systems.
| Act Id | 200751 |
| Act Number | 51 |
| Enactment Date | 2007-12-20 |
| Act Year | 2007 |
| Ministry | Ministry of Finance |
| Enforcement Date | 12-08-2008 |
PRELIMINARY
Section 1: Short title, extent and commencement
Section 2: Definitions
DESIGNATED AUTHORITY
Section 3: Designated authority
AUTHORISATION OF PAYMENT SYSTEMS
Section 4: Payment system not to operate without authorisation
Section 5: Application for authorisation
Section 6: Inquiry by the Reserve Bank
Section 7: Issue or refusal of authorisation
Section 8: Revocation of authorisation
Section 9: Appeal to the Central Government
REGULATION AND SUPERVISION BY THE RESERVE BANK
Section 10: Power to determine standards
Section 11: Notice of change in the payment system
Section 12: Power to call for returns, documents or other information
Section 13: Access to information
Section 14: Power to enter and inspect
Section 15: Information, etc., to be confidential
Section 16: Power to carry out audit and inspection
Section 17: Power to issue directions
Section 18: Power of Reserve Bank to give directions generally
Section 19: Directions of Reserve Bank to be complied with
RIGHTS AND DUTIES OF A SYSTEM PROVIDER
Section 20: System provider to act in accordance with the Act, regulations, etc.
Section 21: Duties of a system provider
Section 22: Duty to keep documents in the payment system confidential
Section 23: Settlement and netting
Section 23A: Protection of funds collected from customers
SETTLEMENT OF DISPUTES
Section 24: Settlement of disputes
Section 25: Dishonour of electronic funds transfer for insufficiency, etc., of funds in the account
OFFENCES AND PENALTIES
Section 26: Penalties
Section 27: Offences by companies
Section 28: Cognizance of offences
Section 29: Application of fine
Section 30: Power of Reserve Bank to impose fines
Section 31: Power to compound offences
MISCELLANEOUS
Section 32: Act to have overriding effect
Section 33: Mode of recovery of penalty
Section 34: Act not to apply to stock exchanges or clearing corporations of stock exchanges
Section 34A: Act to apply to designated trade repository and issuer
Section 35: Certain persons deemed to be public servants
Section 36: Protection of action taken in good faith
Section 37: Power to remove difficulties
Section 38: Power of Reserve Bank to make regulations
Below is an overview of the Act:
Purpose of the Act
The Act seeks to:
- Provide a legal basis for the regulation of payment and settlement systems.
- Ensure the safety and efficiency of these systems.
- Protect consumers and participants in these systems.
- Promote innovations in digital and electronic payment systems.
Key Provisions
- Designated Authority
- The Reserve Bank of India (RBI) is the designated authority under the Act. It has the power to authorize and regulate payment systems.
- Authorization of Payment Systems
- No person can operate a payment system in India without prior authorization from the RBI.
- RBI can grant, revoke, or refuse authorization based on an inquiry and compliance with specified conditions.
- Regulation and Supervision
- RBI has the authority to set standards for operation, security, and efficiency.
- It can inspect, audit, and call for information from system providers.
- RBI can issue directions and take enforcement actions to ensure compliance.
- Rights and Duties of System Providers
- System providers must act in accordance with the Act, regulations, and RBI guidelines.
- They are required to maintain confidentiality of documents and data.
- Provisions are included for settlement finality and netting, protecting the system against disruptions.
- Protection of Funds
- Section 23A protects funds collected from customers, ensuring they are not misused or subject to claims from creditors.
- Dispute Resolution
- Disputes arising between participants of a payment system can be settled under the Act.
- Offences and Penalties
- It provides penalties for non-compliance, including operating unauthorized payment systems or failing to follow RBI’s directions.
- Offences by companies are also covered.
- Overriding Effect
- The Act has an overriding effect over inconsistent provisions in other laws concerning payment systems.
Amendments and Developments
The Act has been amended to incorporate new developments in payment technology and introduce better regulatory frameworks, such as adding Section 23A to protect customer funds and extending its scope to designated trade repositories and issuers.
Scope of Application
The Act covers all payment and settlement systems, excluding stock exchanges or clearing corporations of stock exchanges, except in specific cases mentioned in Section 34A.
Significance
- Ensures a robust legal framework for electronic and digital payments in India.
- Promotes trust in the payment ecosystem by safeguarding users and participants.
- Supports innovation and the development of new payment systems.
- Aligns India’s payment systems with international standards.
This Act has been instrumental in India’s journey toward a digital economy by fostering safe, secure, and efficient payment and settlement systems.
FAQs on Payment and Settlement Systems Act, 2007 (Simplified)
1. When did the PSS Act, 2007 come into effect?
The PSS Act became law on December 20, 2007, and took effect on August 12, 2008.
2. What is the purpose of the PSS Act, 2007?
The Act aims to regulate and supervise payment systems in India. It gives the Reserve Bank of India (RBI) authority to manage these systems and ensures secure financial transactions. It also defines rules for “netting” and “settlement finality,” crucial for non-RTGS systems.
3. What regulations were made under this Act, and when did they start?
Two regulations, the Board for Regulation and Supervision of Payment and Settlement Systems Regulations, 2008 and the Payment and Settlement Systems Regulations, 2008, were introduced alongside the Act on August 12, 2008.
4. What do these two regulations do?
The first regulation defines how the RBI’s board oversees payment systems, including its structure and powers. The second outlines how payment systems operate, including rules for applying for licenses and submitting financial details.
5. Does the Act define common terms like “payment system” and “netting”?
Yes, key terms like “payment obligation,” “payment instruction,” “settlement,” and others are defined in Section 2(1) of the Act.
6. What is a “payment obligation”?
It is the amount one participant owes another in a payment system, arising from financial transactions like funds transfers or derivatives.
7. What is a “payment instruction”?
A payment instruction is an order to transfer money, given manually (e.g., via a cheque) or electronically.
8. What is “settlement”?
Settlement refers to completing payment instructions, including transactions involving securities or foreign exchange. It can happen either on a net or gross basis.
9. What is a “payment system”?
A payment system is a setup that allows payments between a payer and a receiver. Examples include card systems, money transfers, and digital wallets. Stock exchanges are excluded.
10. Do entities need RBI authorization to operate a payment system?
Yes, only entities authorized by the RBI can operate payment systems. Unauthorized operations are illegal.
11. Is there an application fee for authorization?
Yes, applicants must pay ₹10,000 (plus GST) when applying for authorization.
12. Can foreign entities operate payment systems in India?
Yes, foreign entities can operate in India but need RBI authorization.
13. Do foreign entities need RBI approval to start operations?
Yes, all entities, whether domestic or foreign, must get RBI authorization to operate payment systems in India.
14. What are Financial Market Infrastructures (FMIs)?
FMIs are systems like payment systems and securities settlement systems that handle financial transactions securely and efficiently.
15. Can foreign FMIs operate in India?
Yes, foreign FMIs can operate in India with RBI approval.
16. What services can foreign entities provide?
Foreign entities can offer any payment system service allowed under Indian law, like card networks or remittance services.
17. What factors does the RBI consider for authorization?
The RBI evaluates technical standards, security measures, financial stability, and consumer interest, among other criteria.
18. What parameters are checked for granting authorization?
The RBI assesses applications against specific guidelines for the type of payment system, like rules for prepaid payment instruments.
19. Can the RBI refuse authorization?
Yes, but it must provide a written explanation and allow the applicant to respond.
20. Can the RBI revoke an authorization?
Yes, if the provider violates the Act, regulations, or authorization conditions.
21. Can rejected applicants appeal?
Yes, they can appeal to the Central Government within 30 days.
22. Does the RBI charge fees or require deposits?
Yes, it may charge fees and require a security deposit for operating a payment system.
23. Can the RBI set standards for payment systems?
Yes, the RBI can define rules for how payment systems operate, including timing and membership conditions.
24. Can the RBI request information from system providers?
Yes, the RBI can ask for operational details and documents.
25. Can the RBI share collected information?
Yes, it can share information to maintain security or for public interest.
26. Can the RBI inspect system providers?
Yes, RBI officers can inspect payment systems and request necessary information.
27. Can the RBI inspect foreign entities in other countries?
Yes, but foreign entities may receive exemptions if agreements with their home regulators exist.
28. Can the RBI issue directions to system providers?
Yes, it can instruct providers to take specific actions or stop certain practices to ensure smooth operations.
29. Does the Act cover “netting” and “settlement finality”?
Yes, it legally ensures that settlements are final and cannot be reversed, even if a participant becomes insolvent.
30. What duties do system providers have under the Act?
System providers must operate according to the Act, maintain confidentiality, and disclose terms and charges to participants.
31. How are disputes settled under the Act?
Disputes between participants, or between providers and participants, are resolved by the RBI. If the RBI is involved, the dispute goes to the Central Government.
32. What happens if an electronic fund transfer fails due to insufficient funds?
It is considered a criminal offense, similar to a bounced cheque, and is punishable under the Act.
33. What penalties are imposed for violations?
Operating without authorization, providing false information, or breaking regulations can lead to fines or criminal prosecution by the RBI.