Fintech Risk and Regulation Compliance

Undoubtedly, technology has evolved manifolds over the years, and since coupled with Finance, it is cultivating experiences and opportunities fairly new to audiences. Regulators and policymakers are attempting to keep pace with the innovations and developments to implement firm yet inclusive policies. To ensure increased cybersecurity against threats, frauds and breaches, it is essential regulators design policies that align with security and market integrity.

Traditional banks have active policies that must be complied with solemnly. Contrastingly, Fintech, which functions in the same domain has had comparatively forbearing laws until recently. Following are the regulatory bodies that govern different products and services within Fintech-

● The Reserve Bank of India (RBI)
● The Securities Exchange Board of India (SEBI)
● The Ministry of Electronics and Information Technology (MEITY)
● The Ministry of Corporate Affairs
● The Insurance Regulatory and Development Authority of India (IRDAI).

Microfinance institutions, money lenders, NBFCs, etc who offer consumer loans, peer-to-peer (P2P) loans and other types of credit are governed by the RBI. They ensure that standards relating to capital adequacy, prudential norms, cash reserve ratio, statutory liquidity ratio, credit ceiling, KYC guidelines, etc are rigidly maintained. However, these compliance norms may vary depending upon the agency and service it is relayed to.

Investments are alternative financial instruments that are regulated by the SEBI. It involves mutual funds, collective investment schemes, alternative investment funds, etc. SEBI has implemented various ratings and schemes to apprise customers of potential risks and regulations. Furthermore, it has directed schemes to be close-ended with no guarantee of returns, restricted advertisements, etc as a prerequisite to dealing in mutual funds.

To allow customers to take advantage of the convenience of online payments, the Payment and Settlement Systems Act has compliance guidelines in place that lists the various type of payment instruments, aggregators and the guidelines they need to adhere to. Most commonly used; Open payment instruments can be issued only by banks. Prepaid payment instruments, clearing houses, retail payment organizations, card payment networks, ATM networks and many other stakeholders participating in a transaction are regularized and have different guidelines to follow to participate in the market irrespective of the type of payment instrument they are undertaking; open, semi-closed or closed payment instrument.

Fintech Regulators and Regulations in India-
❖ Payment and Settlement Systems Act (2007)
To reduce risk to customers, these regulations ensure that any payment system initiated and operated within Indian premises must be regulated and authorized by the RBI. This includes credit cards, debit cards, online payment instruments, etc.
❖ P2P Lending Platform Regulations
This illustrates the borrowing limits and norms associated with P2P lending. In the borrower’s interest, this guideline is focused on limiting a borrower’s debt factor.
❖ UPI Payment Regulations
UPI Procedural Guidelines issued by the NCPI have designed a framework that demands banks to remain involved in money transfer services offered by Fintech. Banks can leverage the technology offered by Fintech and engage them in the operations undertaken in UPI payments but as per guidelines, the banks must always remain at the forefront depriving Fintech of sole ownership.

Fintech has disrupted the financial ecosystem by displaying new products and service scope; therefore, the regulators see great potential. However, the risks associated with Fintech are also high at its stake and to limit the risk, it is imperative regulations and governance bodies are set in place.

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