Views: Why the RBI deputy governor is wrong about asking fintech to self-regulate

The Reserve Bank of India (RBI) Deputy Governor T. Rabi Shankar called for self-regulation in the fintech sector because regulators are not yet certain what needs to be regulated and to what extent.

“Self-regulatory organizations (SROs) could play a pivotal role in the fintech industry by promoting responsible practices and maintaining ethical standards. These industry-led bodies establish guidelines and codes of conduct that foster transparency, fair competition, and consumer protection,” Shankar remarked while speaking at the Global Fintech Fest in Mumbai on September 5.

But we don’t think this is the right approach to regulating the fintech sector for several reasons:

First, given that we’re dealing with money and peoples’ life savings, we find it problematic that the fintech industry is being asked to self-regulate. There are issues that pose serious concerns, such as predatory lending, unethical practices to recover loans, lack of transparency about fees and interest, misuse of customer data, etc. There should be a regulator and regulations to ensure consumer protection, and we cannot leave the sector to self-regulate.

Second, this isn’t the first time an RBI deputy governor is calling for self-regulation. Rabi Shankar himself has pitched this idea previously and so has former RBI Deputy Governor MK Jain earlier in March this year. Despite these repetitive calls, there don’t seem to be any concrete efforts being made by the fintech sector to self-regulate, effectively giving the sector a free hand.

Third, Rabi Shankar himself in July this year previously talked about how the fintech sector should be regulated similar to traditional entities like banks and NBFCs because “a fintech entity providing characteristic banking services such as loans and payments is pretty much doing a banking activity.” He elaborated by explaining that fintech companies sell the same underlying financial products and services as banks (and other regulated entities) such as credit, deposits, investments, payments, etc., and only the delivery of these products such as speed and cost differ between fintechs and traditional entities.

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And lastly, the government is yet to fully act on the Wattal Committee’s recommendations on digital payments in India presented in December 2016. The report highlights the issues around payments in India and recommends that the government implement an appropriate regulatory framework for payments in the country, including setting up an independent payments regulator. These recommendations could go a long way in addressing some of the concerns posed by fintech entities as well as digital payment activities by traditional entities like banks.

Here’s a full video of Deputy Governor Rabi Shankar’s speech at the Global Fintech Fest:

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