Payment and Settlement Systems Act, 2007

The Payment and Settlement Systems Act, 2007 provides the legal framework for regulating payment systems in India. It designates the Reserve Bank of India as the authority responsible for their regulation and supervision, with the objectives of safety, efficiency and orderly operation.

Statutory control over payment systems

Under Section 3, the RBI is the designated authority for regulating and supervising payment systems. Under Section 4, no person other than the RBI may commence or operate a payment system without its authorization.

• The RBI may grant authorization subject to conditions, or refuse it after following the prescribed procedure.
• It may revoke an authorization when statutory conditions are violated or continued operation is considered prejudicial to the public interest.
• The authorization framework enables the RBI to control entry and ensure that system providers meet legal and operational requirements.

Operational regulation and standard-setting

The RBI may prescribe or determine technical, operational and security standards for payment systems and may issue binding directions concerning their operation.

• It can regulate membership criteria, payment instructions, clearing and settlement arrangements, security procedures and the duties of system providers.
• It may require changes to system rules or operating arrangements to address risks and promote efficient functioning.
• It may issue directions to system providers and participants in the public interest or for the proper management and operation of payment systems.

Supervision, inspection and enforcement

The Act gives the RBI information-gathering and inspection powers necessary for continuous oversight. These powers extend to system providers and, where relevant, system participants.

• The RBI may call for returns, documents and other information relating to a payment system.
• It may enter and inspect premises, examine infrastructure, accounts and records, and audit compliance.
• It may impose monetary penalties for specified contraventions after providing a reasonable opportunity of being heard.
• It may make regulations, with the previous approval of the Central Government, to carry out the purposes of the Act.