The Reserve Bank of India has set up a fintech department, according to a circular released by the bank. The role of the department will be to promote innovation, and identify challenges and opportunities in the fintech sector to address them in a timely fashion, the circular added.
The department came into existence on January 4, 2022, by subsuming the fintech division under the Department of Payment and Settlement Systems, Central Office (DPSS, CO), the circular revealed.
A fintech unit was set up in 2018 under the central bank’s department of regulation; it used to act as a primary point of contact in the RBI for fintech-related activities. The unit was transferred to the DPSS in July 2020, and became the fintech division after its transfer.
The RBI wrote that the financial landscape is evolving dynamically owing to which it needs a department to keep pace with the changes.
What will be the functions of the department?
The department will provide a framework for fintech research which can then be used to aid policy interventions by the central bank.
The bank clarified that all matters related to “the facilitation of constructive innovations and incubations in the FinTech sector, which may have wider implications for the financial sector / markets and falling under the purview of the Bank, will be dealt with by the FinTech Department.”
The fintech department will also deal with matters related to inter-regulatory coordination and international coordination on fintech. It added that the department will be attached to the Centralised Administration Division (CAD), HRMD, Central Office.
RBI’s wariness on the entry of big tech in fintech
The RBI deputy governor T Rabi Sankar stressed that the regulation of fintech companies should be ‘entity-based’ rather than ‘activity-based’, because of the involvement of Big Tech in the sector.
According to the RBI, activity-based regulation means imposing a set of rules on all players offering a particular service while entity-based prudential regulations mean imposing a set of requirements on entities with specific licenses.
The comments were part of Sankar’s speech at the Global FinTech Fest 2021, on how there is a need to adjust the nature of regulation of fintech companies due to the diversity in functions performed by them.
As fintech is transforming the financial landscape, the nature of regulation has to adjust. The sheer diversity in the functions performed by fintech firms, necessitates a widening of the regulatory perimeter. The approach to regulation also needs to adapt to the type of entity being regulated. While similar activities should attract uniform regulation in most cases, such activity based regulation might be less effective than entity-based regulation when one is dealing with financial activities by bigtech firms — T Rabi Sankar, deputy governor, Reserve Bank of India
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