Digital innovations welcome, but must improve efficiency of financial system: RBI chief

Reserve Bank of India Governor Shaktikanta Das on Tuesday flagged the concentration risks and potential fallout resulting from the huge amount of consumer data being generated and mined by a few entities (the so-called BigTechs). because of their huge clientele.

Das noted that a wave of change brought about by fintechs has had a positive impact in terms of improved inclusion and increased penetration of financial services. At the same time, these developments have also ushered in an era where a huge amount of consumer data is generated and mined by a few entities (the so-called BigTechs) due to their huge customer base.

“Such developments raise concerns about concentration risk and potential fallout as their level of engagement with the financial system grows in the years to come.

“Therefore, potential risks to the public policy objectives of maintaining competition, market and business conduct, operational resilience, data privacy, cybersecurity and financial stability require attention. special,” the governor said in his address to the Global Fintech Festival.

Digital lending apps

Noting some significant concerns about the unbridled proliferation of digital lending apps, Das stressed that the need of the hour is to ensure security after going through a green light (whitelist) and due diligence process by regulated entities. . The RBI, in conjunction with other relevant agencies, is taking steps to address this issue and take further action if necessary, he added.

“As we have seen, the way digital lending has taken off in the recent past has been phenomenal. While it has met the needs of various segments, it has also raised several concerns, which have manifested in a series of complaints about usurious interest rates, unethical collection practices and data privacy issues.

“The Reserve Bank has worked to proactively address these issues and as early as June regulatory guidance was provided to our regulated entities,” Das said. The Governor noted that while innovations are welcome, they must be responsible and improve the efficiency and resilience of the financial system while benefiting consumers.

Transparent governance

He observed that strong internal product and service assurance frameworks, coupled with fair and transparent governance, will go a long way to protecting the interests of customers and ensuring the long-term sustainability of fintech entities themselves.

Das pointed out that the level of due diligence and oversight exercised by regulated entities over their outsourced activities needs to be further strengthened. This would contribute to proactive risk mitigation at the initial stage itself. The Governor said that as the RBI continues to support technological advancement and innovation, it is equally important that adequate attention is also given to governance and conduct issues.

Ultimately, the sustainability of any FinTech business or enterprise is about strengthening customer protection, improving cybersecurity and resilience, managing financial integrity, and strengthening data protection, he added.

“I would like to assure the fintech community that the RBI will continue to encourage and support innovation. At the same time, we would expect the ecosystem to pay attention to governance, business conduct, regulatory compliance and risk mitigation frameworks.

“The road to fintech ahead will see ever-increasing traffic on top of the large number of existing players who are already there. It is therefore imperative that every player on this road obeys traffic rules for their own safety and that of others. others,” Das said.

The Governor noted that the aim of the RBI has always been to encourage innovation by providing an enabling environment. Simultaneously, as the guardian of financial stability, the RBI also remains alert to and responds to any accumulation of undue risks.

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Don F. Davis