RBI Asks Firms to Track and Flag Suspicious Transactions

The Reserve Bank of India has instructed the regulated non-bank Payment System Operators (PSOs) to monitor and report suspicious or high-value transactions due to the ongoing Lok Sabha elections, aiming to prevent misuse of e-fund transfers for voter influence or indirect funding of candidates. RBI seeks to enhance transparency and curb illegal financial activities, especially during the elections. With the widespread adoption of digital payments, including UPI and card transactions, monitoring these channels becomes imperative.

Why the step?

As seen in the past, cash circulation typically rises during elections, prompting the RBI to instruct banks to monitor cash movement. However, in a notable shift, the RBI this time has directed the companies involved to track digital payments as they possess the capability to facilitate the transfer of funds aimed at influencing voters or financing election candidates.

Stakeholders involved 

The leading players in this sector are card networks like Visa, Mastercard, and Rupay, to payment gateways like Razorpay, Cashfree, Mswipe, Infibeam, and PayU. Additionally, it extends to payment apps such as Paytm, BharatPe, MobiKwik, Google Pay, and PhonePe, as well as firms involved in cross-border money transfer, ATM networks, PPIs, instant money transfer, TReDS, BBPD, and related systems. These fintech firms operate within the payment ecosystem, facilitating transactions and hence they have been instructed to send daily reports to ensure fair elections.

Notice on KYC

Moreover, due to concerns regarding inadequate know-your-customer (KYC) practices and a proper background check by these fintech companies, the RBI is increasingly worried about these companies having access to formal payment channels. In a recent notice, the RBI proposed that these companies should also be required to conduct bank-grade KYC checks on customers before providing them with these services. 

Conclusion: In conclusion, the Reserve Bank of India’s instructions bring out the critical role of regulated non-bank PSOs in safeguarding the integrity of elections by monitoring everyday digital transactions. By prioritizing the prevention of illegal election activities and promoting transparency, the RBI, along with the instructions from the Election Commission of India, has taken significant regulatory measures to uphold the integrity of the electoral process and ensure fair elections.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.