RBI had to intervene because Paytm's oversight of politically exposed individuals was lacking: References

RBI had to intervene because Paytm's oversight of politically exposed individuals was lacking: References

Several flaws in the manner Paytm Payments Bank performed due diligence when engaging Politically Exposed Persons (PEPs) were discovered during the RBI examination of the bank's risk management system.

The payments bank failed to quickly file STRs for a number of questionable transactions, according to the RBI audit.

The Reserve Bank of India repeatedly warned Paytm Payments Bank about shortcomings in internal risk management, namely in reporting transactions involving politically exposed individuals (PEPs). As a result, the bank was forced to shut its doors. According to two persons with knowledge of the matter, the banking regulator was a major factor in the choice.

According to the persons, who asked to remain anonymous, the banking regulator's assessment of Paytm Payments Bank's risk management system uncovered many flaws, especially in the due diligence procedure involving politically exposed individuals. The individuals, who asked to remain anonymous, said that the payments bank had improper procedures for both monitoring PEPs and appropriately reporting suspicious transaction reports (STRs) to the financial intelligence section of the government.

According to one of the individuals mentioned above, the RBI's remarks focused on the bank's overall risk management processes rather than singling out any specific PEP.

In response to a Moneycontrol inquiry, Paytm said that it has strong procedures in place to guarantee adherence to PEP standards.

"We have put in place sufficient procedures and systems to abide with legal requirements. Our staff is committed to making sure that all of our account monitoring and transaction reporting abides by the highest compliance requirements. stated a Paytm representative.

On February 8, a representative for the RBI did not reply to requests for remarks.

PEPs often have ties to or associations with prominent officials and politicians. They are regarded as high-risk consumers by banking rules because they are more prone to engage in illegal activities like money laundering. Thus, according to experts, financial institutions are required under the Prevention of Money Laundering Rules (PMLA) to adopt additional security measures and obtain Know Your Customer (KYC) documentation.

inadequate observation

Based on historical data, banks have a shared database of these people and organizations. But in some situations, lenders must also carry out further due diligence to ascertain if a person qualifies as a PEP. financial organization, often a single personLenders can monitor the status of an account even in the absence of voluntary disclosure because to PEPs' use of IT systems.

The payment bank failed to quickly submit STR for a number of questionable transactions, according to the RBI audit. Banks and other financial institutions are required by law to notify the RBI of any irregular transactions. These transactions are usually flagged as risky by banks' IT systems, and internal monitoring and risk management teams look into them further. Such suspicious transaction details are sent to RBI for additional action.