MUMBAI : Self-regulation is the way to regulate fintech companies, according to Reserve Bank of India (RBI) deputy governor T. Rabi Sankar.
Speaking at the Global Fintech Fest on Tuesday, Sankar said that fintech companies are not strictly financial entities and, therefore, the current model of regulation may not apply to these companies.
“Regulators and fintech firms are learning to evolve this arrangement where regulators need to know what needs to be regulated and fintech firms need to know the products it develops. The best solution for that to begin with is self-regulation," he said.
This is a shift from the central bank’s earlier thinking that fintech firms need to be regulated. In a July speech, Sankar said that RBI was looking to frame regulations for the fintech sector after consultation with the industry.
In his speech on Tuesday, Sankar also said that self-regulatory organizations (SROs) can play a pivotal role by promoting responsible practices and maintaining ethical standards for the fintech sector.
“Their voluntary compliance mechanism contributes to a more sustainable and reputable fintech ecosystem, ensuring growth while minimizing potential risks and negative outcomes. In the context of a new and evolved sector like fintech, it is the industry participants who possess the deepest understanding of the processes and practices within the trade. Therefore, they are suited to establish common rules and enforce them," he added.
Further, Sankar emphasized that SROs established guidelines and codes of conduct that foster transparency, fair compensation and consumer protection.
SROs can facilitate collaboration between fintech firms, regulators and stakeholders, creating a framework for innovation with guard rails. By proactively addressing issues like market integrity, conduct, data privacy, cybersecurity and risk management, SROs help build trust among consumers, investors and regulators, Sankar said.
Last year, RBI issued digital lending guidelines to crack down on illegal activities by certain players and to protect the data of customers.
The central bank also came down heavily on buy-now-pay-later products by prohibiting all non-bank prepaid instrument issuers from loading prepaid instruments with credit lines.
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Updated: 06 Sep 2023, 01:21 AM IST
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