Every system provider shall operate the payment system in accordance with the provisions of this Act, the regulations, the contract governing the relationship among the system participants, the rules and regulations which deal with the operation of the payment system and the conditions subject to which the authorisation is issued, and the directions given by the Reserve Bank from time to time.
Simplified Explanation
Section 20 of the Payment and Settlement Systems Act, 2007 imposes a legal obligation on every system provider to ensure that the operation of the payment system complies with various regulatory frameworks. This includes compliance with:
- The provisions of the Act: The system provider must operate in line with the requirements specified in the Payment and Settlement Systems Act itself.
- The regulations: This refers to any detailed rules, guidelines, or directives issued by the Reserve Bank of India (RBI) or other competent authorities under the Act.
- The contract governing relationships among system participants: Any contractual agreements between system participants (e.g., between banks, financial institutions, or other entities involved in the payment system) must also be followed by the system provider.
- The rules and regulations for operating the payment system: These are detailed operational guidelines or standards that define how the payment system should function in practice.
- The conditions of the authorisation: When a system provider is authorized to operate a payment system under the Act, there are specific terms and conditions attached. The system provider is obligated to adhere to these conditions for the validity of their authorisation.
- The directions issued by the Reserve Bank: From time to time, the RBI may issue directions to the system provider, and these must be followed. These directions may pertain to operational or regulatory matters affecting the smooth functioning of the payment system.
Key Provisions of Section 20:
- Comprehensive Compliance Requirement:
- System providers must operate in full accordance with a wide range of regulations, conditions, and directions. This ensures that the operation of payment systems is transparent, secure, and well-regulated.
- Contractual and Legal Obligations:
- System providers are required to honor the contractual relationships between system participants and comply with the terms governing those relationships. This ensures that business transactions within the system are conducted as agreed upon by the parties involved.
- Adherence to Directions from RBI:
- The section underscores the importance of following RBI’s directions as part of maintaining the stability and security of payment systems. The RBI has the authority to issue directions in the public or monetary policy interest, and these directions are mandatory for the system provider.
Purpose of Section 20:
- Ensuring Regulatory Compliance: This provision ensures that system providers are not just following the letter of the law, but also complying with the broader regulatory framework, including operational guidelines and contractual obligations. It ensures that payment systems are operated in a manner consistent with both the Act and broader financial regulations.
- Protecting the Payment System’s Integrity: By requiring adherence to regulations, the section helps maintain the integrity, security, and operational reliability of the payment system. It minimizes risks that might arise from non-compliance, such as fraud, data breaches, or operational inefficiencies.
- Accountability: It creates a clear framework where system providers are accountable for their actions. They are legally bound to operate in a structured, transparent, and compliant manner, reducing the scope for arbitrary actions that could harm the broader financial ecosystem.
Consequences of Non-Compliance:
- If a system provider fails to comply with the provisions of Section 20, they risk facing regulatory actions from the Reserve Bank of India, including warnings, penalties, or revocation of their authorization to operate a payment system. Non-compliance could also result in legal consequences under other provisions of the Payment and Settlement Systems Act.
In Summary:
Section 20 establishes a comprehensive compliance framework for system providers, ensuring that they operate payment systems in alignment with the Payment and Settlement Systems Act, regulations, contracts, RBI directions, and conditions of authorization. This ensures the integrity, efficiency, and security of the country’s payment systems, holding providers accountable for their operations.
