The Enforcement Directorate (ED) has concluded its inquiry into transactions conducted by Paytm Payments Bank Limited (PPBL) and found no violations under the Foreign Exchange Management Act (FEMA), according to sources familiar with the matter. While the ED did not uncover any FEMA breaches, it’s reported that the Reserve Bank of India (RBI) retains the authority to address potential non-compliance in other areas.
Earlier, on January 31, the RBI issued a circular directing PPBL to cease accepting further deposits, top-ups, or engaging in credit transactions for its customer accounts, wallets, FASTags, and National Common Mobility Cards (NCMC) after February 29. However, this deadline has since been extended to March 15.
The decision to take action against Paytm Payments Bank Limited (PPBL) stemmed from the findings of a Comprehensive System Audit report and subsequent compliance validation report by external auditors. These reports revealed “persistent non-compliances and continued material supervisory concerns in the bank,” prompting regulatory intervention.
In response to the situation, the Enforcement Directorate (ED) was tasked with scrutinizing the financial transactions under scrutiny. As an agency responsible for investigating suspected violations or offences under the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA), the ED’s involvement was crucial.
However, sources indicate that since there are no scheduled PMLA offences involved in the PPBL case, a money laundering investigation cannot be pursued. A government official explained, “If no crime is made out, there is also no generation of ‘proceeds of crime,’ and so, PMLA does not apply.” Consequently, the ED focused its investigation on determining whether any violations occurred under the FEMA provisions.
The Enforcement Directorate (ED) reportedly examined over 50 lakh wallets/accounts, primarily holding small deposits, and found no contravention of foreign exchange rules. However, the investigation revealed alleged violations related to Know Your Customer (KYC) compliance and other issues, falling under the purview of the Reserve Bank of India (RBI) for regulatory action.
The ED’s findings, along with certain observations regarding other payment banks, third-party application providers, and payment aggregators, have been shared with the RBI. Areas of concern highlighted by the agency include deficiencies in KYC norms adherence, such as user or merchant onboarding processes, document collection and authentication, anti-money laundering measures, merchant category code assignment, and compliance with regulations set by the National Payments Corporation of India (NPCI).
The RBI is expected to review the findings and may initiate appropriate action in response to the identified concerns.