RBI proposes law to govern fintech sector; digital banking policy

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apex bank’s annual report for fiscal year 2021-22 recognizes that cybersecurity is a big concern at a time when the use of technology has increased exponentially

As the fintech segment thrives at both macro and micro levels, it is important that adequate attention is given to cybersecurity, financial inclusion, financial stability, and consumer protection, among others. said the RBI in its report.

The Reserve Bank of India (RBI) said on Friday (May 27) that the burgeoning fintech sector needed regulations for more sustained growth, although it acknowledged that its approach to the segment was changing dynamically as markets evolved. .

The apex bank’s annual report for the 2021-22 financial year indicates that cybersecurity is a big concern, especially when the use of technology has increased exponentially. The report says the fintech segment, which thrives on innovation, is generally unregulated in areas such as neo-banking and digital lending, recommending legislation for long-term growth.

As the fintech segment thrives at macro and micro levels, it is important that adequate attention is paid to cybersecurity, financial inclusion, financial stability, and consumer protection, among others.

The RBI wants to minimize risk through judicious use of technology and its structures in the FinTech segment, without compromising the demand for a wide range of useful applications in the industry. In short, the bank aims to walk a tightrope, balancing innovation and regulation.

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“As expected, such innovation first disrupts the market and once it has established its constructive role, regulators and authorities step in to regulate the space to sustainably nurture innovation and mitigate the downsides. associated risks,” the RBI said.

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For the 2022-23 financial year, the apex bank aims to frame a digital banking policy, in addition to the gradual establishment of the Central Bank Digital Currency (CBDC).

Taking into account Finance Minister Nirmala Sitharaman’s budget statement, the bank plans to open 75 digital banking units in 75 districts.

Last year, a special committee made recommendations to structure the guidelines for the digital lending segment with a focus on restricting lending only to entities regulated by the RBI, the legislation aimed at preventing illegal activity in the internet. space and the establishment of a self-regulatory organization (SRO), among others. things.

In the annual report, RBI said: “The Digital Lending Task Force (18 November 2021) is another exercise to enable the creation of a comprehensive regulatory framework for the digital space. The implementation framework would require close inter-agency coordination, including government.

The Niti Aayog had also suggested licensing and regulating neo-banking platforms. The RBI, however, has yet to take an appeal on the matter. Some of the popular neo-banking platforms are Jupiter, Fi, RazorpayX, Open, etc.

Earlier, RBI Governor Shaktikanta Das said the recommendations issued by the apex bank had received more than 700 comments and the guidelines for the fintech sector would be ready within the next two months.

“The Reserve Bank has also assumed the role of an unconventional central bank through its initiatives such as the regulatory sandbox, the creation of the Reserve Bank Innovation Hub, the organization of a hackathon, among others,” he said. he declares.

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