Central Depository Services India to inspect Paytm Money's KYC process

The country's largest securities depository, Central Depository Services India (CDSL), has commenced an examination of Paytm Money's procedures for verifying customers, according to a report by The Economic Times (ET). This scrutiny comes in the wake of regulatory actions against Paytm Payments Bank by the Reserve Bank of India (RBI) and the central bank's directive on January 31.

The RBI's recent directives have resulted in restrictions on most operations of Paytm Payments Bank, including deposits and fund transfers, effective from March 1, 2024. These measures were imposed due to alleged breaches, including violations of Know Your Customer (KYC) norms. However, it's important to note that these restrictions do not directly impact Paytm Money, which operates as an independent entity.

Despite the regulatory actions, users' deposits in Paytm Payments Bank, including savings accounts, FASTags, National Common Mobility Card (NCMC) accounts, and wallets, remain secure. Users can continue to utilise the existing balance in their accounts without interruption.

KYC norms in securities more rigorous than banking

The CDLS handles electronic holding and settlement services for securities and regularly conducts audits for platforms like Paytm Money. They ensure that platforms are compliant with anti-money laundering laws and KYC regulations. It must be noted that KYC norms in securities are more rigorous than in banking, where the standards are designed to ensure financial institutions are also protected from fraud, corruption, money laundering and terrorist financing.

Market regulator Securities and Exchange Board of India (Sebi) permits centralised KYC, streamlining the verification process across regulated participants. Depositories mandate KYC for every customer, handled by entities like CDSL Ventures, in accordance with prevailing regulations.

Customer verification plays a pivotal role in the wealth management industry, with depositories like CDSL ensuring stringent checks on stockbrokers to verify users' availing of services. New demat accounts undergo audits by third parties, and depositories monitor each account closely before trading activities commence.

One97 Communications, Paytm Money's parent company, assured ET that the platform adhered to regulatory standards set by Sebi and is committed to maintaining the highest compliance standards.

Shares of Paytm were trading at Rs 465 as of 10:20 am on the BSE. The share prices were down nearly 6 per cent from Wednesday's close.