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Delhi High Court's Paypal order to impact fintech compliance costs

US-based PayPal and other payment operators in India will face increased regulatory costs due to the recent Delhi High Court ruling on compliance with the Prevention of Money Laundering Act

Delhi high court

A view of Delhi High Court building in New Delhi (Photo: PTI)

BS Web Team New Delhi

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The order by the Delhi High Court (HC) against US-based PayPal regarding mandatory compliance with the Prevention of Money Laundering Act (PMLA) on Monday is set to raise the regulatory expenses for payment operators in India according to a report by the Economic Times.

The ruling implies that payment companies, even those providing only a technology layer on top of banks without handling funds themselves, will now have to adhere to the PMLA guidelines. They will be required to periodically report high-value and suspicious transactions to the Financial Intelligence Unit.

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Until now, many payment operators only had to follow the guidelines under the Payment and Settlement Systems Act enforced by the central bank. However, with the recent court order, even technology service providers facilitating money transfers between two parties fall under the ambit of payment systems and must comply with PML regulations.

Legal experts have expressed differing opinions on the ruling added the ET report. Some believe it will increase the cost of compliance, especially for small businesses in the low-margin payment industry. On the other hand, proponents argue that such compliance measures are essential to prevent money laundering and ensure financial security.

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Larger payment companies were already voluntarily reporting to the Financial Intelligence Unit, but the recent ruling now mandates such reporting for all payment operators. This move aims to bring clarity and uniformity in the industry regarding anti-money laundering measures.

While payment applications transitioning into payment aggregators or gateways have already started reporting suspicious transactions in line with the new regulations, most operators are awaiting in-principle approval to operate as payment aggregators.

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First Published: Jul 26 2023 | 12:13 PM IST

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