The Reserve Bank of India has set up an inter-regulatory Working Group to study the entire gamut of regulatory issues relating to Financial Technology and Digital Banking in India.

The Working Group has been set up in view of the growing significance of Fintech innovations, and their interactions with the financial sector as well as financial sector entities. The Group will review and appropriately reorient the regulatory framework, and respond to the dynamics of the rapidly evolving Fintech scenario.

The Financial Stability and Development Council – Sub Committee (FSDC – SC), at its meeting held on April 26, had decided to set up such a Working Group to look into and report on the granular aspects of Fintech and its implications.

The Working Group is headed by Sudarshan Sen, Executive Director of RBI, and has 12 members including AP Hota, MD and CEO, National Payments Corporation of India; AS Ramasastri, Director, Institute for Development and Research in Banking Technology; Mrutyunjay Mahapatra, Deputy Managing Director and CIO, State Bank of India; and Nitin Chugh, Head (Digital Banking), HDFC Bank.

Activity to be undertaken According to the terms of reference of the Working Group, it will undertake a scoping exercise to gain a general understanding of the major Fintech innovations/developments, counterparties/entities, technology platforms involved, and how markets as well as the financial sector in particular are adopting new delivery channels, products and technologies.

The Group will assess opportunities and risks arising for the financial system from digitisation and use of financial technology, and how these can be utilised for optimising financial product innovation and delivery to the benefit of users/customers and other stakeholders. The Group will also evaluate implications and challenges vis-à-vis various financial sector functions such as intermediation, clearing, and payments, being taken up by non-financial entities.

It will chalk out an appropriate regulatory response with a view to re-aligning/re-orienting regulatory guidelines and statutory provisions for enhancing Fintech/digital banking-associated opportunities, while simultaneously managing the evolving challenges and risk dimensions.

The RBI said the Group may invite views from representatives from any area relevant to its terms of reference and may also, at its discretion, co-opt entities in the payments, telecom, software and start-up ecosystem. The Group will submit its report within six months from the date of its first meeting.

‘Agathokakological’? Another key area of discussion is whether technology is an ‘agathokakological’ companion? In its latest financial stability report, the RBI had flagged the question “Technology: the ‘agathokakological’ (composed of both good and evil) companion?”

The RBI has raised this question in the context of increased levels of hacking threats and distributed denial of service attacks, which have the potential for causing significant disruptions in the services of Fintech ventures, apart from risks related to sensitive customer information and cyber frauds.

The RBI said: “‘Denial of service’ in information technology parlance, is something that sounds scary. While the current cyber defence mechanisms appear to be robust as they have been withstanding innumerable cyber-attacks, a multi-sigma event of a failure of such a mechanism in an increasingly networked global financial system is something all the stakeholders need to guard against.”

In this regard, the RBI said the onerous task of efficient monitoring and management of the attendant information technology systems and data security risks are important for enhancing the net benefits of disruptive innovations.

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