Paytm Money, a leading online investment platform, has paid a Rs 45.5 lakh fine to the Securities and Exchange Board of India (SEBI) to settle allegations of regulatory violations. The settlement order, passed by SEBI on Thursday, allows the company to avoid further legal proceedings related to the matter.
The case originated from a show-cause notice issued by SEBI on July 24, 2024, which accused Paytm Money of non-compliance with the regulator’s technical glitch framework. The company was found to have violated several operational and regulatory guidelines designed to ensure smooth and secure trading operations for investors.
Regulatory Violations and SEBI
One of SEBI’s key concerns was Paytm Money’s failure to meet the required 70% threshold for generating alerts on critical assets. These alerts are crucial for investor protection, especially during market fluctuations. The inability to generate timely warnings raised doubts about Paytm Money’s risk management strategies and its ability to protect users during high volatility in the stock market.
In addition, SEBI found that Paytm Money did not provide essential documentation regarding system performance during its inspection period. The company failed to share records related to the peak load on its servers, which is important to assess whether the platform can handle high trading volumes during market surges or technical disruptions. This lack of transparency raised concerns about Paytm Money’s infrastructure stability and its ability to manage increased user activity.
Another major issue flagged by the regulator was the company’s failure to connect its critical systems to the Log Analytics and Monitoring Application. This tool plays a vital role in real-time tracking of system performance, detecting potential failures, and ensuring smooth trading for investors. The absence of this connection posed a risk to operational efficiency and investor security.
Lack of Disaster Recovery Measures
SEBI also highlighted that Paytm Money did not conduct a mandatory disaster recovery (DR) drill between April and September 2023. These drills are essential for preparing companies to recover from technical failures or cyber threats. The failure to conduct a live test of its backup systems suggested that Paytm Money had gaps in its emergency response planning.
Without proper disaster recovery measures, online trading platforms may struggle to restore operations quickly after a technical failure, which can lead to financial losses for investors. SEBI emphasized that such lapses could harm investor confidence in digital trading platforms.
Settlement and Future Compliance
By paying the Rs 45.5 lakh fine, Paytm Money has settled the regulatory case and avoided further legal scrutiny from SEBI. However, the company is expected to take corrective measures to strengthen its risk management, improve its system monitoring, and comply with SEBI’s guidelines in the future.
For investors, the case serves as a reminder to choose platforms that prioritize regulatory compliance and system security. As the stock market becomes increasingly digital, platforms must maintain strong infrastructure and risk management practices to protect users from unexpected disruptions.
