According to people familiar with the development, the Reserve Bank of India (RBI) is likely to announce new rules for fintech companies regarding several topics, including credit operations and knowing your customer (KYC) standards.
This is in contrast to complaints about some fintech charging usurious interest rates and other problems such as not complying with KYC, AML, and ownership disclosure requirements, they said.
Aspects of data sharing, privacy, the scope of outsourcing relationships, compliance with KYC and AML standards, and the formal legitimacy of products like buy now, pay later are likely to be covered by the new fintech regulations (BNPL).
“Discussions about the function of fintech and how to regulate them are currently taking place. That will be published soon as a notification or a rule. According to Vikram Babbar, partner, forensic and integrity services, EY, I believe you will see some RBI requirements on how fintech will be regulated this year, according to Moneycontrol.
“What are their responsibilities and how do you control them? The first step is to comprehend how exposed the sector is to this fintech. The RBI agrees that they (fintech) are essential. We are part of some of the broader conversations with the RBI,” he said.
India ranks 13th in fintech adoption rate globally and received funding of $8.53 billion from a total of 278 deals during 2021-22, the RBI said.
However, the advent of fintech has exposed the banking system to new risks that extend beyond prudential issues and often intersect with other public policy objectives relating to the safeguarding of data privacy, cyber security, consumer protection, competition, and compliance with AML policies, the regulator said.
Earlier Rules
Many fintech firms have stopped the buy now pay later (BNPL) services after a recent Reserve Bank of India notification. The new guidelines, issued by the RBI last month, stopped non-bank prepaid payment instruments (PPIs) from being loaded with credit lines.
The central bank’s move comes amid rising concerns over card-based credit services and PPIs being loaded through credit lines.
According to the RBI, the new credit instruments could result in systemic risk. The new-age fintech firms are using lines of credit from banks and non-banking financial companies (NBFCs) to load customer wallets.
The bank regulator is apprehensive about a lack of due diligence while loading the PPIs through credit lines.
The new RBI guidelines, issued on June 20, have sent the fintech companies into a tizzy and many have temporarily stopped prepaid instruments.
According to the new directive, non-banking companies cannot offer credit cards or other PPIs without the prior approval of RBI. However, the customers can load their pre-paid wallets with cash or use credit and debit cards issued by their banks for the same.
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