News & Analysis

Indian Fintech Talks Self-Regulation

At a time when a report from the International Bar Association's Banking Law Committee is suggesting frameworks created by regulators or governments

India’s booming fintech ecosystem is actively considering self-regulation as a means of smoothening the digital payments business at a time when the International Bar Association (IBA) governing legal practices across the world believes that laws should be formulated for a multi-jurisdictional governance of the industry. 

The report (download here) provides an overview of the fintech regulatory frameworks of 39 jurisdictions across continents and includes India as a key player. It addresses how regulators across geographies are dealing with the technology and innovation that in many ways, is changing the way money gets transacted. 

Self-regulation appears to be a non-starter

Meanwhile, a report published in ET says the self-regulation was an idea brought forth by the RBI at a conference in March, though even after a month, enterprises in the sector have not proceeded beyond initial discussions to join hands and lay out the groundwork for a move that aims to reduce centralized control over their businesses. 

The report said the Payments Council of India, which governs companies in the digital payments business, sought to become the self-regulator, but the RBI had grave doubts about this move as the Council has multiple unregulated entities on its rolls. Readers would know that the council is an arm of the Internet and Mobile Association of India, an apex organization that includes the likes of Google, Amazon and Facebook among others. 

A lofty idea, that is flawed by contrary interests

The idea, reportedly broached by none other than RBI governor Shaktikanta Das, who felt that a self-regulatory body could be the way forward. But, creating the right contours for such a body is tough given that the payments industry has a diverse lot of players, from UPI-based apps to mobile wallet companies, ATM service providers, clearance corporations etc. 

Industry watchers believe that conversations amongst this lot could remain superficial at best due to their diverse interest in the matter. Though the Council committed to creating such a body, till date nothing much has moved. Given that large parts of the industry grew in an unregulated environment, bringing them together to self-regulate appears a tough act.

International Bar Association does get it right

Which is why the IBA’s report seems to have appeared at an opportune time. The report points out that fintech has appeared as a positive impact creator across the world and information contained in the 264-page report could serve as a platform from which governments can formulate laws around the ever-expanding digital payments and currencies domain. 

In fact, the IBA is convinced that fintech is here to stay and supplement the banking and financial services sector, given that it creates opportunities for reducing the gap between the traditional financial users and those without access to banking and payment services. India’s own experiment has come in for special mention in the report. 

The report points out that given the multi-jurisdictional nature of the business, it is important to study the impact through a comprehensive legal framework. The report has been created with the support of leading fintech lawyers across the countries that feature in it. It outlines laws and regulations governing five aspects of fintech, viz., financial innovation, crypto assets, payment service providers and digital wallets and open banking supporting fintech.  

The report highlights the need of a regulatory framework as fintechs become a solution for financial transactions where adequate and balanced legal frameworks are crucial for the growth of such a crucial sector of the economy. 

At the same time, and considering that often the use of fintech products is not limited by geographical barriers, adapting a common base set of regulations in specific fields may be helpful to encourage fintech companies to provide services in multiple jurisdictions. Every country should develop adequate and specific fintech regulations, because it will not be sufficient to regulate fintechs through diffused and isolated norms, says the IBA website.

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