Govt moots Independent Payments Regulatory Board to promote consumer protection

An inter-ministerial panel has suggested setting up an independent Payments Regulatory Board (PRB) to foster competition, consumer protection, systemic stability and resilience in payment sector. The committee, headed by Economic Affairs Secretary S C Garg, recently submitted its report to the Finance Minister.

In the Finance Act of 2017, the government amended the Payment and Settlement System Act, 2007 (PSSA) and provide for a PRB to be headed by the RBI Governor as ex-offico chairperson. The Committee, however, suggested the chairperson should be appointed by the government in consultation with the RBI.

In the composition provided in the Finance Act, there were three positions with RBI and three with the central government. All the members were nominated or independent. "In that design, there were no whole-time members on the PRB," the committee said while proposing a "slightly" broad based composition and provision for whole-time chairperson and four whole-time members. 

The panel has also put forward a draft of the Payment and Settlement System Bill 2018 for consideration by the Cabinet. The draft bill seeks to promote consumer protection; systemic stability and resilience; and competition and innovation, with regards to the payment system.

On the role of the RBI, the draft bill provides for a coordination mechanism between the PRB and the central bank. "It provides for the PRB to make reference to the RBI in relation to making regulations for designated payment systems. 

"It also provides the RBI with the powers to make a reference to the PRB to consider any matter, which in the opinion of the RBI is important in the context of the monetary policy," said the report by the panel.

The draft proposal provides PRB with sufficient powers to ensure public's ability to transmit money smoothly and securely through payment and settlement systems. "The Committee recommends that the government may place the proposed Bill before the Union Cabinet for its consideration," said the report.

The RBI had suggested that the regulation and supervision over the payment systems be retained with the RBI in the proposed bill, and also the chairperson of the PRB should be from the central bank with a casting vote.

The report further said the proposed Bill was modified to provide experience in the central banking function as a qualification of the chairperson. 

To further address RBI's concerns, the committee made changes to the bill to provide RBI with the powers to make a reference to the PRB to consider any matter, which in the opinion of the RBI was important in the context of the monetary policy.

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"However, RBI's assertion that there could be an intrinsic problem in regulation of payments if they are not within the ambit of the central bank and might result in regulatory arbitrage appears to be without evidence," it added.

The PRB, it added, has been given sufficient powers in the bill to ensure that the public's ability to transmit money smoothly and securely through payment and settlement systems is ensured.