INTRODUCTION
The RBI issued a Circular dated
KEY TAKEAWAYS
Existing PA-CB Entities have to apply for the RBI license by
Most notably, PA-CB Entities have to register themselves with the Financial Intelligence Unit-India ("FIU-IND") prior to applying for authorization with the RBI. As a result, PA-CB Entities will have to account for the time taken to apply and obtain FIU-IND registration and should ensure that the said registration is obtained before
In terms of capital requirements, the Circular requires PA-CB Entities to have a minimum net worth of INR 150 million as on the date of submitting their application for authorization.
The Circular also contains specific requirements and restrictions on the import and export of goods and services, the details of which can be found in the Annexure to this note.
COMPARATIVE ANALYSIS
Previous RBI regulations on cross-border export and import transactions, notably the Online Payment Gateway Service Provider Regulations issued in 2015 ("OPGSP Regulations"), were primarily focused on the obligations of authorised dealer banks ("AD Banks"). The OPGSP Regulations referred to PA-CB Entities as Online Payment Gateway Service Providers ("OPGSP") and AD Banks were expected to follow certain requirements while forming partnerships with OPGSPs, including the obligation to conduct due diligence on OPGSPs. The OPGSP Regulations did not require PA-CB Entities to obtain an RBI license or FIU-IND registration. Rather, the restrictions imposed on PA-CB Entities were minimal and limited to, amongst others, compliance with applicable laws, conducting due diligence while onboarding sellers, and installing a dispute resolution mechanism. Additionally, foreign entities seeking to operate as OPGSPs were required to open a liaison office in
In 2022, the RBI released a draft circular (referred to as "Draft Regulations") which clarified the role and responsibilities of the AD Banks and PA-CB Entities while facilitating cross-border transactions. Even under the Draft Regulations, the RBI did not contemplate a licensing regime for PA-CB Entities.
In contrast to the OPGSP Regulations and Draft Regulations, the obligations outlined in the Circular primarily target PA-CB Entities. Unlike earlier, PA-CB Entities are now required to obtain a license from the RBI, and the operation of an Import Collection Account or Export Collection Account constitutes a designated payment system under the Payment and Settlement Systems Act, 2007 ("PSSA"). As a consequence, PA-CB Entities are subject to more rigorous requirements that were previously only applicable to payment aggregators.
Similarly, under the OPGSP Circular, foreign entities were permitted to operate as PA-CB Entities as long as they opened a liaison office in
The RBI's decision to regulate PA-CB Entities is likely to have been influenced by the decision of the
The decision of the Court has, in essence, been reaffirmed by the Circular. This can be demonstrated by the fact that the Circular requires PA-CB Entities to register with the FIU-IND as reporting entities.
CONCLUSION
By virtue of the Circular and the licensing mandate under it, the cross-border payments sphere is going to be far more tightly regulated than before. Going by the RBI's stringent approach to granting licenses under the PSSA, it is highly possible that the Circular could limit the number of licensed PA-CB Entities in the market. The RBI seems to have taken a conservative stance given the significant rise in cross-border e-commerce transactions. It also appears that one of the motives behind the Circular is to strengthen the AML/CFT measures undertaken by PA-CB Entities by compelling registration with the FIU-IND.
ANNEXURE
AUTHORIZATION REQUIREMENTS
- All PA-CB Entities have to obtain authorization from the RBI for the following categories:
- Export only PA-CB;
- Import only PA-CB; and
- Export and Import PA-CB.
- Existing PA-CB Entities have to apply for authorization with the RBI by
April 30, 2024 , and such entities are permitted to continue providing PA-CB services until the RBI arrives at a decision on their application. - PA-CB Entities have to ensure compliance with the following norms under the PA Guidelines by
31 January, 2024 : (i) governance; (ii) merchant-on boarding; (iii) customer grievance redressal and dispute management framework; (iv) baseline technology recommendations; (v) security; and (vi) fraud prevention and risk management framework. - PA-CB Entities have to register themselves with the FIU-IND prior to applying for authorization with the RBI.
CAPITAL REQUIREMENTS
- PA-CB Entities have to meet the following net-worth targets under the Circular:
- Both existing and new PA-CB Entities should have a minimum net worth of INR 150 million as on the date of submitting their application for authorization.
- Existing PA-CB Entities are required to maintain a minimum net worth of INR 250 million by
March 31, 2026 , while new PA-CB Entities should achieve this net worth milestone within three years from the date of authorization.
- An application for authorization by PA-CB Entities should be accompanied by certificates from statutory auditors evidencing compliance with the net-worth requirements.
SPECIFIC REQUIREMENTS
- Import-only PA-CB Entities are mandated to maintain an Import Collection Account ("ICA") with an
AD Category-I Bank . Import payments are received in an escrow account of the PA and subsequently transferred to the ICA for onward transfer to foreign merchants, - Import only PA-CB Entities are required to undertake the due diligence of buyers where the goods or services exceed INR 0.25 million per unit.
- Export only PA-CB Entities are expected to maintain an Export Collection Account ("ECA") with an
AD Category-I Bank to which export proceedings are credited. Further, separate ECAs have to be maintained for every non-INR currency. - PA-CB Entities have to comply with Know Your Customer (KYC) regulations by the RBI while onboarding Indian and foreign (i) merchants; (ii) e-commerce entities; and (iii) PAs.
- PA-CB Entities must ensure that they do not facilitate payment transactions for the import/export of goods or services that are prohibited or restricted under the Foreign
Trade Policy . - PA-CB Entities are disallowed from processing import/export transactions that exceed INR 2.5 million per unit.
- The PA Guidelines will apply to PA-CB Entities to the extent applicable and this includes restrictions on the debits and credits permitted to the ICA and ECA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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