With a view to further channelizing the potential of the country in fintech while managing attendant risks and ensuring effective regulation and supervision of entities, products, and services, the Reserve Bank is currently in the process of consolidating all fintech related work under one umbrella. The new setup will be tasked with managing the entire gamut of fintech-related activity in coordination with its regulatory and supervisory departments.
In its Financial Stability Report, December 2021, the RBI stated that the policy response to fintech so far has involved three major approaches: applying existing regulatory frameworks to new innovations and their business models, often by focusing on the underlying economic function rather than the entity; adjusting existing regulatory frameworks to accommodate new entrants and the re-engineering of existing processes to allow adoption of new technologies; and creating new regulatory frameworks or regulations to include (or prohibit) fintech activities.
Noting that digitalisation of financial services can also bring in its wake various risks such as greater reliance on third-party service providers, mis-selling of financial products, breach of data privacy, unethical business conduct, and illegitimate operations, the report stated that the regulatory landscape for fintech is evolving to address such risks. The recently released report of the Working Group on Digital Lending is a pointer in this direction, through its thrust on enhancing customer protection and making the digital lending ecosystem safe and sound while encouraging innovation.
The RBI Innovation Hub, which is working towards creating an eco-system for idea generation and development through collaboration with tech innovators and academia to promote access to financial markets and financial inclusion, would also develop internal infrastructure to promote fintech research, the report stated.