India’s Financial Intelligence Unit (FIU) has imposed a fine of ₹54.9m ($662,565) on Paytm Payments Bank, the banking arm of Paytm (PAYT.NS).
According to Reuters, This decision comes after the FIU’s thorough review, prompted by information from law enforcement agencies indicating that the bank was used to channel proceeds from illegal online gambling activities. The finance ministry highlighted the bank’s failure to report suspicious transactions and adequately conduct due diligence as key factors leading to this punitive action.
The FIU’s findings reveal that Paytm Payments Bank neglected its obligations under financial regulations, failing to identify and report activities potentially related to money laundering. These activities include the routing of funds generated from unlawful operations through accounts held at the bank. The penalty reflects the FIU’s commitment to enforcing stringent compliance standards within the FinTech industry, particularly concerning anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
In response to the FIU’s order, a spokesperson for Paytm Payments Bank pointed out that the issues leading to the penalty were associated with a business segment that the bank had discontinued two years prior. Since then, the bank has purportedly taken significant steps to improve its monitoring systems and enhance its reporting mechanisms to the FIU. This move is part of a broader effort to address compliance issues that have also seen the Reserve Bank of India (RBI) instructing Paytm Payments Bank to cease operations by March 15, owing to “persistent compliance issues and supervisory concerns.”
The recent developments also coincide with a major restructuring at the payments bank, with Sharma stepping down as the non-executive chairman and board member earlier this week. This change is indicative of the ongoing challenges and regulatory scrutiny facing the FinTech sector in India, highlighting the necessity for robust internal controls and compliance frameworks.
This case serves as a stark reminder to the FinTech industry of the critical importance of regulatory compliance, especially in areas as crucial as AML and CTF. It underscores the regulatory authorities’ readiness to take decisive action against entities failing to uphold the required standards, thereby ensuring the integrity and stability of the financial system.
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