INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Himanshu Malhotra and Purva Anand, Shardul Amarchand Mangaldas & Co
12.3 Responsibility for Losses RBI has issued directions that limit the liability of customers in cases of unauthorised electronic payment transactions involving banks and non- bank PPIs. If the unauthorised transaction results from con - tributory fraud or negligence/deficiency on the part of the RE, the RE bears the full liability. If the loss occurs due to the negligence of the custom - er, the customer is responsible for the entire loss until the unauthorised transaction is reported to the RE. Once reported, any subsequent loss is borne by the RE. In cases where the loss is due to factors beyond the control of both the RE and the customer (eg, systemic issues), the custom - er’s liability remains zero if they report the unau - thorised transaction within three working days. Thereafter, the customer’s liability increases the longer the reporting is delayed. Typically, the RE will include contractual terms to recover such amounts from its service provid - ers if the unauthorised transaction arises due to contributory fraud or negligence/deficiency on the part of its unregulated fintech service pro - vider.
Financial regulators are quick to react and intro - duce regulatory measures to protect customers. For example, in light of increasing card frauds, the RBI introduced guidelines on storage of cus - tomer card data and a tokenisation framework to
control such fraudulent transactions. 12.2 Areas of Regulatory Focus
Indian regulators primarily focus on fraud affect - ing retail customers and the general public (such as card fraud, UPI payment fraud, fraudulent loan recoveries, unauthorised transactions) as well as fraud that has larger, system-wide impli - cations on the banking and financial ecosystem of the country (for example, wilful defaulters, diversion of bank-borrowed funds, etc). The RBI’s constant endeavour is to moni - tor emerging fraudulent techniques with the objective of protecting retail consumers from the same. The RBI is working with banks and enforcement agencies to strengthen transaction monitoring systems and ensure sharing of best practices for control of mule accounts and pre - vention of digital frauds. RBIH is also piloting an AI/machine learning-based model, MuleHunter. AI, to address this concern.
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