Risks to FinTech pose challenge to financial stability: RBI Governor

Mumbai (Maharashtra) [India], June 17 (ANI): Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said the need to regulate the financial technology (FinTech) firms emanates from the challenges they pose to the financial system and the new risks they carry.
The approach to regulation of FinTech could be by way of Activity Based Regulation wherein similar activities are treated similarly, regardless of the legal status or nature of the entity undertaking the activity. It could also be Entity Based Regulation which requires that regulations are applied to licensed entities or groups that engage in similar and specified activities, such as deposit-taking, payment facilitation, lending and securities underwriting, etc, Das said while addressing Financial Express Modern BFSI Summit here.
The approach could also be an Outcome-Based Regulation by setting out some basic, common and technology or business model-neutral outcomes that entities must ensure, he said.
India has traditionally followed a hybrid form of regulation that combines Activity and Entity Based regulation. As a principle, the RBI has been applying comprehensive regulatory, supervisory and oversight requirements to various segments of financial sector in its domain to create an enabling ecosystem for such activities to grow in an orderly fashion. The underlying theme has always been to maintain financial stability.
"Going forward, the RBI will continue to finetune its regulatory and supervisory measures keeping in mind the evolving dynamics of the financial sector," he said.
RBI Governor highlighted the need for collaboration between finance and technology firms.
He said the large technology companies (BigTech) which have entered into the provision of financial services could potentially be another source of disruption to the financial system.
"As you would be aware, such companies, whether from e-commerce, social media and search engine platforms, ride hailing and similar businesses have started to offer financial services in a big way on their own or on behalf of others," he said.
"These companies have an enormous amount of customer data which has helped them to offer tailored financial services to entities and individuals lacking credit history or collateral. Even the banks and other lenders are sometimes utilising platforms provided by fintech companies in their internal processes for credit risk assessment. Such large-scale use of new methodologies in credit risk assessment can create systemic concerns like over-leverage, inadequate credit assessment, etc. Authorities and regulators have to strike a fine balance between enabling innovation and preventing systemic risks," RBI Governor said.
Das said the big techs also pose concerns related to competition, data protection, data sharing and operational resilience of critical services in situations where Banks and NBFCs utilise the services of big tech companies. These concerns can also materialise in sectors other than financial services.
The provision of financial services through the digital channel, including lending through online platforms and mobile apps, have brought in issues relating to unfair practices, data privacy, documentation, transparency, conduct, breach of licensing conditions, etc. The Reserve Bank will soon issue suitable guidelines and measures to make the digital lending ecosystem safe and sound while enhancing customer protection and encouraging innovation, he said. (ANI)