In a letter to the Finance Ministry in October 2018, US India Strategic Partnership Forum (USISPF) said iSPIRT’s participation in a RBI meeting on data localisation “may” have constituted a conflict of interest. This is especially so because the RBI had asked iSPIRT to provide technical expertise on compliance with data localisation directive to the companies. The meeting was held just days before the localisation mandate kicked in on October 15. USISPF pointed out that iSPIRT is a private association, is not a stakeholder in the consultation, is not empaneled by the RBI, and isn’t an official technical advisor to the government or the RBI.

The USISPF’s letter to the Finance Minsitry, acquired via an RTI application, was dated October 13, 2018. It addressed issues with the the RBI’s data localisation mandate, and it’s meeting with payments companies on October 10. USISPF had met with the Finance Ministry on October 5 and subsequently participated in the RBI meeting held on October 10. Indian Software Products Industry Round Table, better known as iSPIRT, is a Bangalore-based private think tank.

The USISPF raised some “industry concerns” during the meeting and highlighted challenges around the October 15 deadline:

1. RBI asked iSPIRT to advise companies on localisation mandate, placed “great reliance” on iSPIRT inputs: The RBI placed “great reliance” on technical inputs provided by iSPIRT, which was represented by four officials, while the RBI only allowed two representatives for each payments company. iSPIRT is a private organisation, is not a stakeholder in this consultation process, is not empaneled by the RBI, and is not an official technical advisor to the government to the RBI. iSPIRT’s presence may constitute a conflict of interest, “especially” since the RBI asked iSPIRT to provide technical expertise to the companies on compliance of its localisation directive.

2. Technology teams not present: Most payment service providers were represented by their business heads, and had no people from their technology teams present. Hence, they were unable to impress upon the RBI “the enormity of the technical challenges that the localisation directive entails”.

3. RBI read from the companies’ confidential compliance reports: The RBI read out selective text from the bi-weekly compliance reports that companies had been providing the regulator. These reports were confidential, and had been shared with the RBI with the understanding that they would not be shared publicly, especially not amongst commercial competitors.

4. Compliant companies largely had local operations: During the meeting, RBI said that of the 78 payments companies, 62 were compliant with the directive. However, USISPF pointed out that the compliant companies had largely local operations. This figure was “unrepresentative of the difficulties faced” by global payments companies that were most significantly affected by the localisation directive.

“To take such companies as being indicative of the feasibility of compliance is misleading and does not account for the complexities faced by companies with significant worldwide presence.”

5. Asked for another year to comply with localisation mandate: The forum had asked for another 12 months, over and above the six months given by RBI, to comply with the data localisation mandate. The forum explained that data localisation “requires significant changes to applications, processes, and systems architecture of payments companies”. The forum said that at an earlier meeting (on an unspecified date) with the then Department of Economic Affairs Secretary Subhash C. Garg, it was concluded that the companies would need another 12 months to ensure compliance.

6. Mandate deadline would disrupt payments services: Requiring companies to comply by the then deadline of 6 months, without sufficient time to adequately address the implementation and executive risks involved, could cause significant disruption to customer usage of payment services, with potential interruptions leading to loss of consumer trust and reliability in digital payments. The impact of the mandate would mean customers switching to cash payments, which would be counterproductive to government’s mandate of digitisation.

While the purpose of the meeting was to review the status of compliance, the forum said, its members were “blindsided” by the technical tonality of the meeting. It said that its members had been looking for an open and transparent consultation, and were instead “informed of the strong unwavering position of the RBI on the matter”. The outcomes and, moreover, lack of process and transparency have raised “some deep concern on the Indian investment environment for foreign investors …”.