You are here: Home » Finance » News » Others
Business Standard

RBI issues norms for outsourcing payment, settlement activity by PSOs

Bars PSOs from outsourcing core management functions, including risk management and internal audit; compliance and decision-making functions such as determining compliance with KYC norms

Reserve Bank of India | Outsourcing

BS Reporter  |  Mumbai 

Photo: Reuters
Photo: Reuters

The (RBI) has come out with a framework to put in place minimum standards to manage risks in of payment and settlement-related activities by non-bank payment system providers (PSOs), which they have to comply with by March 31, 2022.

The central bank has said the PSOs must have board-approved policies for such activities. The board of the PSOs also has to undertake periodic reviews of policy, strategies, and arrangements for their continued relevance, safety, and soundness.

In a circular issued on Tuesday, the RBI said, "The PSOs shall not outsource core management functions, including risk management and internal audit; compliance and decision-making functions such as determining compliance with KYC norms”.

Further, while considering or renewing an outsourcing arrangement, the PSO should forge an agreement such that it allows them the flexibility to retain adequate control over the outsourced activity and the right to intervene with appropriate measures to meet legal and regulatory obligations.

Also, the agreement should be such that the PSOs have access to all books, records, and information relevant to the outsourced activity, available with the service provider. Also, they should have the right to conduct an audit of the service provider. And, the agreement should have clauses by virtue of which it allows RBI to call for an inspection of the service provider’s accounts.

The RBI has said by outsourcing any activity to a third-party service provider, a PSO cannot wash its hands off the obligations of the outsourced activity. “The PSO shall, therefore, be liable for the actions of its service providers and shall retain ultimate control over the outsourced activity”, the RBI said.

“Outsourcing arrangements shall not affect the rights of a customer of a payment system against the PSO, as well as those of a payment system participant against the PSO, including her/his ability to avail grievance redressal as applicable under the relevant laws”, the RBI said.

The central bank emphasizing the importance of security and confidentiality of customer information said the PSO has to immediately notify the RBI about any breach of security and leakage of confidential information related to customers. “In such eventualities, the PSO would be liable to its customers for any damage”, the RBI has said.

Also, the third-party service provider to which the payment and settlement activities have been outsourced by the PSOs have to be able to isolate and clearly identify the PSO's customer information, documents, records, and assets to protect their confidentiality. “Where the service provider acts as an outsourcing agent for multiple PSOs, there should be strong safeguards (including encryption of customer data) to avoid co-mingling of information, documents, records, and assets of different PSOs,” the RBI said.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, August 03 2021. 19:22 IST