Section 17 of The Payment and Settlement Systems Act, 2007
Where the Reserve Bank is of the opinion that,--
- (a)a payment system or a system participant is engaging in, or is about to engage in, any act, omission or course of conduct that results, or is likely to result, in systemic risk being inadequately controlled; or
- (b)any action under clause (a) is likely to affect the payment system, the monetary policy or the credit policy of the country, the Reserve Bank may issue directions in writing to such payment system or system participant requiring it, within such time as the Reserve Bank may specify--
- (i)to cease and desist from engaging in the act, omission or course of conduct or to ensure the system participants to cease and desist from the act, omission or course of conduct; or
- (ii)to perform such acts as may be necessary, in the opinion of the Reserve Bank, to remedy the situation.
Summary
- The Reserve Bank can issue written directions if it sees a "systemic risk" that is not being managed well.
- Systemic risk is when one person failing to pay causes others to fail, threatening the whole system.
- Directions can also be issued if an action might hurt the country's monetary or credit policy.
- The Reserve Bank can order a system or participant to "cease and desist" (stop) a certain action.
- It can also order them to perform specific acts to fix a bad situation.
- These orders must be followed within the time limit set by the Reserve Bank.
Practical examples
FAQ
1. What is a "cease and desist" order?
It is an order to stop doing a specific act or following a certain course of conduct.
2. When does the Reserve Bank issue these directions?
When they believe a systemic risk is not being controlled or when monetary/credit policy is at risk.
3. Can these directions be given verbally?
No, the law says the Reserve Bank may issue directions "in writing."
4. Who do these directions apply to?
They can be issued to a payment system or to a specific system participant.
Test yourself
Q1.Under Section 17 of The Payment and Settlement Systems Act, 2007, what is one reason the Reserve Bank might issue a direction?
Q2.According to Section 17 of The Payment and Settlement Systems Act, 2007, a "cease and desist" order means:
Q3.Under Section 17 of The Payment and Settlement Systems Act, 2007, directions must be issued in what format?
Q4.If the Reserve Bank wants to fix a situation that is hurting credit policy under Section 17 of The Payment and Settlement Systems Act, 2007, what can they order?