The Payment and Settlement Act System (PSS Act) was established by the Reserve Bank of India on December 20, 2007, and approved by the president. The Act became effective on August 12, 2008. The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) is a central body established by the RBI (the top institution in the country) with the power to regulate and oversee payment and settlement systems. The RBI created the Payment and Settlement Systems Regulations of 2008. Both regulations were implemented on August 12 2008, by the RBI.

Objectives

The Payment and Settlement System Act 2007 aims to regulate and monitor payment methods in India. The Act allows RBI to grant powers, hold payment gateways, and be the supreme authority. The Act also establishes a legal framework for “netting” and “settlement finality.” The RBI created a Board of Industry Experts for Regulation and Supervision of Payment and Settlement Systems as a central authority with jurisdiction to control and supervise payment and settlement systems. RBI also created the Payment and Settlement Systems Regulations 2008 (PSSR). Both regulations came into force on August 12, 2008.

The 2008 Payment and Settlement Systems Regulations aims to achieve the following

This course covers the topics of the application format to start/operate a payment system, as well as the authorization granted.

This document specifies the payment instructions and sets out the standard for payment systems.

This includes topics related to information delivery, such as documents or returns.

This includes how system providers produce accounting and balance sheet systems.

Payment system authorization

Section 4 of the PSS Act only grants RBI the power to operate and launch payment systems. Anyone else who wishes to do this must request permission from RBI under Section 5. Form A must be used to submit the authorization request following PSS Regulations 2008, Regulation 3(2). The application form must be filled out and submitted to the RBI along with all the required paperwork and 10,000. The fee can be paid by cashier’s check, demand draft, money order, checks payable to RBI, or electronic funds transfers. You can also submit it electronically. This link is the only way the RBI can grant permission to system providers running payment systems or wishing to set up a payment system. This Act makes any illegal use of a payments system a punishable crime.

Control and jurisdiction of foreign entities

The Act does not make any distinctions between domestic and international entities. Section 4 of the Act uses the phrase “No person.” It is, therefore, permissible for foreign organizations to run India’s payments system. Before launching a payment system, obtaining an RBI license or approval is necessary.

The Act does not restrict the ability of a foreign company to provide any payment or service. The PSS Act of 2007 allows payment systems that foreign companies can provide as long as they comply with local laws. The RBI has permitted alien card networks such as MasterCard and Visa Worldwide Pvt. The RBI has granted foreign card networks like MasterCard and Visa Worldwide Pvt permission. Foreign entities like Western Union Financial Services Inc. (USA), MoneyGram Payment Systems Inc., and others also offer remittance services. They have been authorized—control Financial Market Infrastructures (FMI).

The system operator is one institution that participates in a multilateral network. This technique can settle or record financial transactions, such as payments or securities. FMI refers to Central Securities Depositories, Securities Settlement Systems, Central Counter Parties, and Trade Repositories as “payment systems” in the Act. This facilitates the clearing, settlement, and recordkeeping of financial transactions. The Principles for Financial Market Infrastructures are published by the International Organization of Securities Commissions and Committee on Payment and Settlement Systems. FMIs are also subject to the policies and guidelines of PFMIs. In India, a foreign Financial Market Infrastructure is also allowed to operate. The PSS Act doesn’t prohibit it. The RBI released a press statement on July 26, 2013, titled, “Policy document for regulation and supervision of financial market infrastructures.”

RBI’s regulatory powers

The Reserve Bank can authorize payment systems if it so wishes.

According to Section 7(3), RBI can reject a request by sending a written notification that details the reasons and allows the applicant an appropriate amount of time for a response. The RBI may revoke any authorization granted based on Section 8 of the Act. The consent can be revoked if the system provider violates RBI directives or orders, any Act, regulatory rule, or the terms of the authorization.

Section 7 allows RBI to collect fees for permission. Section 15(3) will enable RBI to provide any documents or information it receives to anyone or any authority if they determine it is necessary for the integrity, effectiveness, or security of the payment system or is in the public’s best interests. Section 14 of the Act gives the RBI the authority to ensure that the Act’s regulations are followed. Section 14 of the Act provides the RBI with the power to ensure that the Act’s rules are followed.

The RBI reserves the right also to inspect any area where it has been asked to do so. By Sections 17 and 18, the RBI is authorized to order a payment system, or a system participant, to perform a specific act or refrain from doing a particular action to ensure the system’s smooth operation.