FSDC forms regulators’ panel to address fintech challenges

Mumbai: The Financial Stability and Development Council (FSDC) has constituted the first of its kind inter-regulator panel to address the regulatory challenges posed by the fintech industry, two people with direct knowledge of the matter told ET.

The committee includes officials from the Reserve Bank of India (RBI), finance ministry, the Securities Exchange Board of India (Sebi) and the Insurance and Regulatory Authority of India(IRDAI). This group will seek better co-ordination among regulators to deal with fintech companies, people cited above added.

The advent of fintech companies into financial services space has not just disrupted the ecosystem but has started to throw up unique regulatory challenges.

For instance, consider a technology platform that sells various assets such as shares, bonds and insurance products. While these products are regulated by various individual regulators such as Sebi and IRDAI, the payment and clearance are undertaken by RBI regulated entities.

Emails sent to the Finance Ministry, RBI, Sebi and IRDAI remained unanswered.

“The fintech space has innovated so much with the structures that nowadays no single regulator has complete control or information about a large fintech entity; hence cooperation within regulators is a welcome step,” said a person privy to the matter. “There has to be a standard procedure in place too between various regulators to deal with Black Swan events.”

A few months ago, there was a major issue with the purchase of mutual fund units through technology platforms. While the money was being deducted from the client accounts for the purchase, the units were not being allotted for 3-4 days. Following complaints from various market participants, Sebi escalated the issue with RBI since the payment clearance for this was done by National Automated Clearing House (NACH) – an entity that comes under the regulatory purview of RBI.

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“Given the innovative models and platforms on which fintech companies operate, conventional modes of interaction between various regulators involved have created difficulties in the past,” said Moin Ladha, partner, Khaitan & Co. “This committee should be able to address the need for better coordination and enable regulators to align their approach on specific issues and prevent regulatory overlaps.”

This requirement is also stemming from the fact that fintech firms are gradually replacing traditional distributors and in effect also blurring the lines between different classes of offerings in the broader banking, insurance and investment services.

A fintech firm like Amazon or PhonePe, besides its core payments operations, also offers its customers the choice to purchase insurance, mutual funds and basic banking products on the same platform.

“India’s financial services sector has reached a critical mass-market point where new fintech players are attempting to scale financial services to millions of users who have the access for the first time,” said an official.

“Unlike earlier, the regulators need an even deeper deliberation on balancing innovation and supervision which can be only achieved through regular consultations between the regulators and the government,” the person added.

The country’s fintech sector has seen a significant growth in the last few years largely owing to the rapidly digitizing consumer economy in India. According to a BCG-FICCI report, India’s fintech sector in 2020 is valued to be at $50-60 billion, set to grow by five times to nearly $200 billion by 2025, making it one of the largest in the world.


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