Fintech
SRO framework enables fintechs to set their own codes of ethics: RBI director general
The Reserve Bank of India (RBI) plans to enable fintech companies to formulate their own codes, standards and ethics by setting up self-regulatory organisations (SROs), RBI Chief General Manager of Fintech Department Suvendu Pati said at the India International Fintech Festival at Assocham. “We did not want to hamper fintechs because they are at different stages of development and need treatment that will enhance their innovation,” Pati said.
The regulator has released the framework for SROs in May of this year. This framework defines the characteristics, eligibility criteria, functions and responsibilities. “A lot of startups don’t have expertise in a specific area. A lot of fintechs are good at product development but they don’t have adequate resources on the regulatory or legal side. So we would like SROs to take on the role of developing, coaching and providing guidance on how to follow regulatory procedures,” Pati explained.
Other highlights of the discussion:
The purpose of the fintech repository:
RBI has launched a fintech and Em-tech (emerging technology) repository in May of this year. Pati explained that the goal behind the fintech repository was to gain visibility into the sector in a structured way. “We currently have no visibility into the number of fintechs, the activities they do, the technology stack they use, the range of services they provide and their partnerships,” he said. This makes it difficult for the regulator to create policies and frame regulations for fintechs.
Pati said that participation in this repository is a voluntary exercise, adding that over 100 entities have contributed so far. “This information would only be visible to the entity that enters the data and would only help us get a collective sector aggregate,” he said.
With the Em-tech repository, RBI intends to gather information on how banks and non-banking financial companies are implementing technologies such as artificial intelligence (AI), quantum computing and cloud. “We do not have clear visibility on how banks are using this [emerging technology]and the degree of adoption. So we wanted regulated entities to contribute to the repository,” Pati said.
CBDC adoption is a question of “when” and not “if”:
The RBI has released a central bank digital currency (CBDC) called Digital Rupee in 2022. Digital Rupee should have the same strength as traditional currency. Pati said the regulator sees CBDC as a product of the future, with 140 countries exploring CBDC at various stages. “At some point, we will see that CBDC provides a viable, safe and secure alternative to cash and reduces our dependence on currency. This would also reduce the need to print, distribute, recover those notes and replenish them,” Pati stressed.
Pati highlighted the usefulness of CBDCs for cross-border money transfers. He said that cross-border payments present three challenges:
- High remittance costs
- Payment timing/time zone restrictions
- The lack of adequate transparency in tracking money until receipt
“CBDC through its technology and tokenized way of transferring the bids to break all these barriers and restrictions,” he said. He added that India has entered into pilot agreements with some countries and has joined multilateral projects for this purpose. “This is an area where I would encourage, in addition to traditional banks that are part of the [CBDC] Distribution systems, fintechs and NBFCs should also enter this segment as the potential for innovation is immense,” he said, adding that the regulator has initiated programmability as part of the CBDC to monitor the final usage of the currency.
Pati also mentioned RBI’s pilot programs that map CBDC use cases. “We have started a pilot in Maharashtra in partnership with a bank, where carbon credits reach farmers in the form of CBDCs and they can redeem them at specific factory outlets,” he said. He also cited an example of a company that has partnered with RBI to give its employees credits in the form of CBDCs.