RBI Deputy Governor T Rabi Sankar, on Tuesday, called for self-regulatory organisations (SROs) in the fintech industry to proactively address issues such as market integrity, conduct, data privacy, cybersecurity, and risk management.
“As regulators continue to contemplate, implement, and refine regulations for the orderly development of the fintech sector, SROs could play a pivotal role in the fintech industry by promoting responsible practices and maintaining ethical standards,” said Sankar at the Global Fintech Fest 2023.
- Also Read: Arjuna’s Eye. . RBI Governor vows commitment to 4% inflation target amid food price shocks
These industry-led bodies will help establish guidelines and codes of conduct that foster transparency, fair competition, and consumer protection. Further, they will facilitate collaboration between fintech firms, regulators, and stakeholders, creating a framework for innovation with guardrails, he said, adding that SROs will help build trust among consumers, investors, and regulators.
“What is different about the recent financial innovations is the speed and scope of such changes making them potentially much more disruptive,” he said, adding that rapid technology changes can outpace regulatory frameworks, thus raising issues about market integrity, consumer protection, data privacy, and fair market practices.
Fintechs have brought about transformation in the form of increased efficiency, with which financial products and services are delivered and consumed. This has been driven by digitisation of information for easier access, processing and transmission, direct interface between buyers and sellers, borrowers and lenders, and payers and receivers, and democratisation of fast communication channels.
- Also Read: Need effective forex liquidity mechanisms to support cross border transactions: RBI Governor
“Put together, these efficiencies lead to lower cost, quicker transactions and better inclusion. This is clearly a desirable outcome and one that should be actively encouraged and promoted, which is what the focus of policy making and regulation currently is,” Sankar said.
In turn, traditional financial players are reacting by either internalising innovations to compete with fintechs, or are collaborating with fintechs through one-to-one partnerships or by purchasing their services.
The second route is more functional because fintechs can perform in areas where they have a competitive advantage and banks can focus on their areas of their expertise. While customers benefit from curated products and services at competitive prices, the regulator also takes comfort from the fact that the traditional players are well regulated.
“Perhaps the sweet spot lies in fintechs acting as both competitors as well as collaborators. The existence of competition is necessary to create incentives for fintechs to invest in innovations as well as pushing traditional entities to stay on their toes. At the same time, collaboration is essential for innovations to be absorbed into the financial systems,” he said.
