Fintechs (Financial technology) thrive to improve and automate the delivery and use of financial services while encouraging innovation. It is one of the most heavily regulated sectors. Not surprisingly, regulations have emerged as the number one concern among governments as fintech companies take off. Though, there is no universal regulatory body for fintech entities in India. Depending on the product or service offered by the entity, the regulatory body governing such vertical would regulate those specific entities.
By and large fintech products and services can be considered to fall under the purview of the following regulators:
- Reserve Bank of India (RBI)
- Securities Exchange Board of India (SEBI);
- Ministry of Electronics and Information Technology (MEITY);
- Ministry of Corporate Affairs; and
- Insurance Regulatory and Development Authority of India (IRDAI).
However, the RBI currently regulates the majority of fintech companies dealing with account aggregation, peer-to-peer (P2P) lending, crytocurrencies, payments, etc. There are multiple categories of institutions that engage in lending. These are banks that include scheduled commercial banks and non-scheduled commercial banks, cooperative society banks, small finance banks, non-banking financial companies (NBFCs) and money lenders.
Factoring can be undertaken by banks, NBFCs registered as factors with the RBI and other government entities. Invoice discounting can be undertaken by banks, NBFCs and corporates. Bonds and debentures can be listed on stock exchanges as public offerings. Syndications of loans are generally not regulated unless they are converted into securitised instruments. Payment services are also regulated and are particularly relevant to fintech. Entities in India can deal in foreign exchange trading only with permitted stock exchanges and banks in India. Other entities such as fully-fledged money changers are also permitted to deal with foreign exchange. Note that Indian residents are not permitted to trade in foreign exchange through overseas trading platforms.
RBI regulates Peer To Peer Lending
The RBI is the authority that regulates P2P lending in India. All P2P lending platforms are required to be registered with the RBI as an NBFC-P2P. The eligibility requirements for a company to register as a P2P lending platform include, among other things:
- a minimum capital of 20 million rupees;
- that the company applying for registration is incorporated in India;
- a robust and secure information technology system must be in place;
- there must be a viable business plan; and
promoters and directors must fulfill the fit and proper criteria laid down by the RBI.
Although, fintech is already delivering significant benefits to consumers and investors; to financial services firms and financial market infrastructure, and to financial stability and financial inclusion. However, the increasing use of fintech solutions and emerging technologies also bring risks, to which regulators and supervisors are responding.