The key regulatory developments in the fintech space that were announced recently, are discussed below.

Amendments to the ‘Know-Your-Customer’ Regulatory Framework

On November 06, 2024, the RBI issued an amendment (Amendment) introducing changes to the Master Direction – Know Your Customer (KYC) Direction, 2016 (KYC Directions), in view of the recent amendments made to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 as well as to incorporate the instructions issued by the Government of India in context of Section 51A of the Unlawful Activities (Prevention) Act, 1967.

The key changes introduced by the Amendments to the KYC Directions include:

1. Regulated Entities (REs) have been permitted to apply the Customer Due Diligence (CDD) measures that were undertaken by it for identification and verification of a customer, at the level of ‘Unique Customer Identification Code’.
2. REs have been required to undertake enhanced monitoring for high-risk accounts of customers.
3. REs must seek customer’s KYC Identifier from the concerned customer and obtain KYC records online / digitally from the Central KYC Records Registry (C-KYCR), to establish an account-based relationship, or to update or verify the identity of the customer.
4. REs have been restricted from seeking or requiring customer to provide KYC records or information available on the C-KYCR, unless for reasons such as change in customer’s information from that existing in the C-KYCR, expiration of the validity period of the documents, or is necessary for verification of customer’s identity or address or enhanced due diligence, etc.
   

   
   Reporting Mechanism for Credit Information

On October 10, 2024, the RBI has issued instructions in connection with credit information (Credit Info Instructions), and these have been issued to financial institutions and Credit Information Companies (CICs).

In the event of a cancellation of a license or registration of banks or non-banking finance companies (NBFCs), the Credit Info Instructions have prescribed a reporting mechanism, to address issues pertaining to non-updation of repayment history of borrowers despite repayment and clearing of dues on account of these banks and NBFCs ceasing to be credit institutions (CIs). The RBI has directed that these CIs must continue to report credit information of borrowers who were on-boarded and reported to CICs prior to cancellation (of license or registration of banks or NBFCs). The information needs to be reported to all CICs until loan lifecycle is completed or the CI is wound up, whichever is earlier.

The Credit Info Instructions will need to be implemented by April 10, 2025.

Risk Assessment for Money Laundering and Terrorist Financing

The RBI has issued guidance for internal risk assessment (IRA) of its REs, on October 10, 2024. The framework for IRA lays down key principles and methodologies in relation to IRA. The guidance has been issued with the objective to ensure that the REs analyse vulnerability to money laundering (ML) and terrorist financing (TF), in order to be able to mitigate such risks.

The IRA by REs will involve identification of risk factors for ML and TF, as well as the impact assessment for such risk.

In accordance with the guidance document, to identity and assess the risks, REs may consider factors such as: (i) customer risk factors including type of customer, customer’s ownership and control structure, and customer’s profession or industry; (ii) identifying jurisdiction (including the country and geographical area) where the customer and its beneficial owner are located and the main place of business; (iii) product, services and transaction related risk, including level of transparency of transactions in product or service as well as the complexity and value of product, service or transaction.

Digital Payment Systems for Persons with Disabilities

On October 11, 2024, the RBI has issued guidelines advising payment system participants (PSPs) to review payment systems and devices from the perspective of accessibility by persons with disabilities and carry-out necessary modifications that may be required.

The guidelines have clarified that PSPs must ensure that the modifications do not compromise security aspects of their systems.

PSPs have been directed to share details of their systems and devices that need to be modified along with a time bound plan of action for achieving the modifications, with the RBI by November 11, 2024.

Enhancement of Limit for via UPI Lite Wallet

In relation to the small value digital payments through the unified payments interface (UPI) via the offline mode, the RBI announced the decision to increase the per transaction limit to INR 1,000 (from the existing limit of INR 500) and the overall limit of INR 5,000 (from the existing limit of INR 2,000) for a UPI Lite wallet.

While the RBI announced this as part of the ‘Statement on Developmental and Regulatory Policies’ issued on October 9, 2024, the notification for such change is yet to be issued.

Removal of Pre-Debit Notification for UPI AutoPay

In connection with the earlier announcement by the RBI in context of e-mandate framework for auto-replenishment of balances of NETC FASTag and RuPay National Common Mobility Card (NCMC), the NPCI has now liberalised the framework for such e-mandate functionality.

In a communication issued to the members of the UPI ecosystem, NPCI has removed the requirement to provide the pre debited notification with 24 hours prior to the charge, for the UPI AutoPay functionality. This notification has been removed for e-mandate payments for NETC FASTag and RuPay NCMC.

Rebranding of BBPS

NPCI Bharat BillPay Limited (NBBL) announced the rebranding of the ‘Bharat Bill Payment System’ to ‘Bharat Connect’, vide circular dated September 11, 2024. The Operating Units were directed to implement the rebranding of ‘Bharat Connect’ for the name, brand and logo, including the sonic identity of Bharat Connect. The ‘Bharat Connect’ brand guidelines have also been issued.

Expansion of Scope for Bill Collection

NBBL launched ‘Bharat Connect QR’, vide a communication dated October 21, 2024, issued to the Bharat Connect Operating Units, to enable billers to convert offline collections into digital collections.

Through this model, customers will be able to make bill payments by scanning the QR code, within the same application of the customer operating units (COUs) and agent institutions (AIs). In order to operationalize the functionality, the front-end applications that provide the bill payments facility must enable reading and scanning of QR codes. Upon scanning the QR code, customers will be able to fetch the latest bill with the billers, post which the payments for the bill can be made.

All COUs and AIs will need to implement the necessary developments by November 15, 2024.

Credit Card for Bill Payments

Vide circular dated September 17, 2024, NBBL has clarified and reiterated that credit card as a payment mode is restricted for Credit Card Bill Payments and Loan Repayments, in the Bharat Connect system. NBBL has directed the Operating Units to ensure that accurate information is captured in the payment request that is initiated on Bharat Connect for payments made using credit cards and ensure that these are not used for prohibited payments. In this regard, NBBL has provided that it will monitor integrity of the payment information and it will take action such as business discontinuance, monetary penalty or penal action, for non-compliance.