RBI Advocates for Demarcation of Roles to Regulate Big Tech: ‘Responsibility of Regulators Must Be Identified’
The Reserve Bank of India (RBI) has argued for a clear delineation of responsibilities of various regulators in the context of large tech companies operating in the Indian financial sector. Highlighting the risks associated with the rise of a “data-fueled oligopoly,” the central bank spoke of the need to encourage the growth of small businesses with innovation capabilities.
“Given that FinTech breaks down services into a large number of areas, there is a need to clearly delineate the responsibilities of different regulators on relevant aspects of the business entity and to ensure that there are adequate channels for regulatory collaboration,” wrote the RBI in the currency report. and funding for 2021-22. Such a demarcation can be made with the overriding objective of facilitating innovation through competitiveness while ensuring a level playing field, according to the report.
In the past, the RBI was concerned about the growing dominance of internet giants like Google and Meta’s WhatsApp in the financial services arena. Likewise, he has taken notice of the proliferation of digital lending apps in the country, many of which have come to light following reports of usurious lending rates and abusive collection practices.
The report of a task force, set up to suggest ground rules for digital lenders, was released in November 2021. The group found that there were around 1,100 lending apps available to Indian users in ‘Android, of which 600 were illegal. The task force’s recommendations ranged from creating a self-regulatory body for digital lenders to formulating legislation banning unregulated lending activities.
In its latest report, the central bank highlighted the risk of volatility emerging from the prevailing business models in the digital lending segment. “Given that digital lending originates primarily from debt and equity rather than deposits, the supply of funds from digital lenders could be more pro-cyclical and volatile due to the lack of standard credit guidelines,” says the report. In addition, credit activity outside the prudential regulatory space could make credit-related countercyclical policies less effective, he added.
The Money and Finance report also acknowledged the data privacy threats posed by fintech players in the absence of dedicated legislation. Data mining motivated by the simple aim of maximizing profits could replicate and perpetuate existing patterns of discrimination and exclude vulnerable sections, the RBI said. “India’s population is becoming data-rich with increasing internet and mobile coverage, the next challenge may be to empower consumers through adequate legal and regulatory support,” the report said.
Some loan apps sought to collect collections by accessing their borrowers’ phone contact lists and calling or texting family and acquaintances, among other things.