“Conceptually, a fintech entity providing characteristic banking services such as loans and payments is pretty much doing a banking activity. Such entities may not require a banking license, but they need to be regulated similar to how such activities are regulated in a bank,” T Rabi Shankar, Deputy Governor of Reserve Bank of India (RBI), remarked on July 7 while speaking at Moneycontrol Startup Conclave 2023.
Why does this matter: Shankar’s comments hint at more regulations for fintech companies to level the regulatory field between them and regulated entities like banks and Non-Banking Financial Companies (NBFC).
“Similar activity, similar regulations” was the phrase used by Shankar half a dozen times during his speech to drive the point home. He elaborated by explaining that fintech companies at the end of the day sell the same underlying financial products and services as banks (and other regulated entities) such as credit, deposits, investments, payments, etc.
“Only the delivery of these products in terms of the channel of delivery, speed, and cost has changed. When they say disrupting, it’s not in terms of the underlying products but in terms of the process and delivery,” Shankar remarked.
“You may not be regulated in the sense of requiring a license or having capital requirements and so on, certainly not as closely as banks are, but the activity itself, whether it’s a payment activity or whether it’s a lending activity, the regulation must ensure that there is a level playing field,” Shankar added, indicating that the regulations for fintech companies won’t be as strict or compliance-heavy as those that exist for banks.
“Regulations might play catch up in responding to the speed and complexity of changing processes. Eventually, however, regulatory gaps will get filled and uniformity in regulations will be ensured,” Shankar said, while also advising fintech firms to include regulatory compliance as a basic requirement in their business strategies if they want to be more stable as a long-term business proposition. “Innovation should not be about exploiting regulatory arbitrage,” the deputy governor added.
In addition to working on addressing regulatory arbitrage, the central bank is working on other regulations for the fintech sector as well. “We are working on fintech regulation, what would be specific to fintech entities and the fintech ecosystem. […] But that regulation of fintech space we are talking about is more developmental in nature,” Shankar said.
“I can’t give a timeline on it. But whenever we will do it, it will be in close coordination and consultation with the industry,” Shankar added, responding to a question on when we can expect these new regulations.
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