.svg)
Regulators in India have announced enforcement actions against Paytm and HSBC, both of which are accused of anti-money laundering (AML) and foreign exchange (FX) violations.
This week, India’s Directorate of Enforcement (DE) confirmed that it has issued a Show Cause Notice to Paytm’s parent company, One 97 Communication Limited (OCL), its managing director and several subsidiaries.
The DE, which is an AML regulator within the Ministry of Finance, alleges that OCL failed to declare an investment of INR6.1bn ($70m) towards the creation of a Singapore-based subsidiary.
As per the Show Cause Notice, the regulator claims that the failure to declare the investment violated the Foreign Exchange Management Act (FEMA) 1999.
In addition, OCL and two other India-based subsidiaries allegedly failed to uphold regulatory standards when receiving foreign direct investment (FDI) from overseas investors.
Two of the subsidiaries did not follow the pricing guidelines outlined under FEMA, the DE alleges, and another failed to report that it had received the FDI within the prescribed timeframe.
Both the FDI pricing and disclosure guidelines are governed by the DE and the Reserve Bank of India (RBI) under FEMA.
The pricing guidelines aim to ensure that the FDI reflects market conditions and avoids practices that could lead to over- or under-valuations of Indian businesses.
They also aim to ensure transparency among Indian financial institutions that receive investment from overseas.
With the case now proceeding to adjudication, the group must demonstrate why penalties should not be imposed for its alleged compliance failures.
In January 2024, as covered by Vixio, Paytm’s banking arm was ordered to cease most of its activities, including onboarding new customers and accepting deposits, due to “persistent non-compliance” with IT regulations.
Though Vijay Shekhar Sharma, co-founder and CEO of Paytm, has said he expects the bank to reopen soon, it remains all but shuttered due to the RBI’s restriction order.
HSBC to pay AML fine
Separately, the RBI has announced that HSBC will pay an INR6.6m ($760,000) penalty for several compliance violations.
In 2023, a supervisory exam found that HSBC was not in compliance with RBI directions on know your customer (KYC) controls, interest rates and deposits, or the reporting of unhedged FX exposures to credit information companies.
Specifically, the RBI found that HSBC had outsourced the processing of AML alerts to another subsidiary, and that it had opened savings deposit accounts on behalf of ineligible entities.
Finally, the bank did not report the unhedged FX exposures of certain borrowers to credit information companies.
After being issued a show cause notice, and after the RBI considered HSBC’s response, the charges against the bank were deemed substantiated, and a monetary penalty was imposed.
