RBI directive on cross-border payments aims to stop forex frauds

Forex frauds under check: The embattled Paytm Payments Bank, apart from being accused of other violations, is facing an Enforcement Directorate (ED) probe on alleged foreign exchange violations under the Foreign Exchange Management Act (FEMA). Financial institutions and payment gateways have often raised concerns over the lack of clarity in cross-border payments. 

The Reserve Bank of India (RBI) has recently issued regulations on cross-border payments, which typically take place between individuals and commercial entities alike, located in different geographies. Will the RBI directives put an end to Forex-related frauds? Republic Business takes a deep dive.  

Cross-border transactions  

With the increase in the digital economy, there are inevitably a number of cross-border transactions, and to ensure transparency and accountability, the RBI has introduced a compliance framework for payment aggregators of cross-border transactions which are also known as PA-CB.  

These regulations even affect authorised dealers or AD banks which are already authorised to deal in foreign exchange in India. The PA-CB regulations for non-banks or payment aggregators make it imminent that commercial entities be registered with Financial Intelligence Unit-India as a prerequisite is compulsory. “It becomes vital to apply to the RBI for authorisation by April 30, 2024. 

It specifies that the entities shall be permitted to continue their services pending RBI authorisation,” said financial expert Kishore Subramanian. 

The compliance with the “Processing and Settlement of Export related receipts facilitated by Online Payment Gateways – Enhancement of the value of And transaction” guidelines issued by RBI vide circular dated March 17, 2020, is also necessary, Subramanian added. All non-banks must have a minimum net worth of Rs 15 crore at the time of submitting an application to the RBI and a minimum net worth of Rs 25 crore by March 31, 2026, says Subramanian. 

Regulatory contours  

Regulations may aim to enhance consumer protection by ensuring that cross-border payment aggregators adhere to certain standards of transparency, security, and reliability in their operations. As per experts, regulations may be introduced to strengthen anti money laundering measures in the context of cross-border payments.  

This could involve requirements for customer due diligence, monitoring of transactions for suspicious activity, and reporting obligations to relevant authorities. “Regulations may seek to strike a balance between fostering innovation and competition in the payments industry while safeguarding the interests of consumers and maintaining the integrity of the financial system,” said Subramanian, who heads an expert panel on financial security in India.