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It’s not easy for regulators to keep up with the pace of technology-led innovation in financial services, and new businesses trying to innovate must do so responsibly, said panellists at Mint Annual Banking Conclave’s session on regulatory risks.

According to G. Padmanabhan, former executive director, RBI, the special challenge that fintech poses to the regulator is that because things are moving so quickly, the latter will have to be very agile. “There has to be innovation but it has to be responsible. How are we to make sure that innovation has a balance between customer convenience and customer safety— that is the real challenge that the regulator faces," he said. It’s the responsibility of the entire ecosystem to make sure that companies work toward responsible innovation because, otherwise, the regulator will tend to get stricter and be more micro., he added.

Shruti Rajan, partner, Trilegal, said that it’s not as if regulators in India, across sectors, are doing nothing, but that the industry is moving much ahead of what the regulators can capture and that is not a problem unique to India.

“Of course, that is a problem for everybody including industry, advisors and lawyers, to keep pace with what is happening. I think it is time for us to go back to the drawing board to understand how you can solve something like this," said Rajan.

She said one idea could be to have a broad principle-based framework across all regulators to look at. Others called for a clearer roadmap from regulators so that the industry has some degree of certainty on regulation. “Fortunately, or unfortunately, when you do not have a roadmap you can go anywhere you want and that is what is happening," said Naveen Surya, chairman of Fintech Convergence Council, which represents regulated financial service providers and fintech companies.

Referring to RBI’s lack of clear updates on its plans to allow new umbrella entities (NUEs) for retail payments on the lines of the National Payments Corp. of India (NPCI), Surya said that despite five years of work by the regulator, government and the industry, there is no clarity or official statement. Anurag Jain, co-founder and executive director at KredX, a supply chain finance platform, said that regulation has to work in sync with how the market is behaving. Jain said that given the pace of innovation, one does not even know the contours and the parameters on which such businesses have to be regulated.

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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