While there is no single ombudsman regulator for fintech companies, most fintech companies would fall under the purview of the RBI. The main FinTech regulator in India is the central bank, the RBI. The RBI initially followed a light approach to FinTech regulation, but has increasingly moved closer to a model of full regulation. Overall, the RBI has also responded quickly to market changes and technological advances, and there have been several changes and updates to the law in recent years to adequately adapt to such developments.
India does not have a unified code of laws governing fintech. Fintech activities in India are mainly regulated by the Reserve Bank of India (RBI), India's banking regulator. The regulation takes the form of acts approved by the legislature and rules and regulations approved by the RBI and other regulators. In the fintech context, the P2P Master Management requires NBFC-P2P to perform due diligence and conduct credit assessments and risk profiles of potential borrowers on a P2P platform.
There is a residual category in India in the form of collective investment schemes (CIS), which the SEBI defines as agreements managed by any company under which contributions from public investors are pooled and used for the purposes of the system in order to obtain profits, income, or property, and are strictly regulated by the SEBI by virtue of its CIS Regulations. Similar to the regulatory sandboxes implemented by RBI for FinTech products, IRDAI and SEBI have proposed similar regulatory sandbox products in the InsurTech space and market-linked financial products offered by entities regulated by them, respectively. India's fintech sector has grown exponentially in recent years and is attracting significant foreign investment to India. Its main functions include the protection of investor interests and the promotion and regulation of India's stock markets.
The fact that there are multiple regulators and nascent legislation can make it difficult for foreign players to navigate India's fintech landscape. India's fintech sector has boomed over the past decade, with increased investment and smartphone penetration, falling data prices and supportive policy approach, and the goal of achieving a “less cash economy” and greater financial inclusion. As a result, non-bank issuers (such as neo-banks and other fintech companies) can avail themselves of a license and issue a full KYC wallet that can support services such as cash withdrawal, which can boost the growth of neo-banks. Considering India's large unbanked demographic with unmet financial needs and recent changes in consumer behaviour towards e-commerce, on-line streaming, telemedicine and distance learning, the fintech sector presents new growth opportunities in the India.
The innovation testing environment is a testing environment in which fintech players and other entities not regulated by SEBI can use data made available by stock exchanges, depositories and similar entities to conduct offline testing of their products in isolation from the market. The growing strength of this sector is evident in the evolution of the collaborative relationship between traditional financial institutions and fintech entities, where the former increasingly adopt technology-enabled products and delivery channels to expand market reach, gain operational efficiencies, strengthen analyzing data and improving the customer experience. Fintech regulators, courts, enforcement agencies, research agencies and other agencies are covered in the ASCL publication entitled Fintech Regulators, Courts and Agencies. Even when a fintech company is regulated (e.g.
clearing and settlement of payments), the applicable rules and requirements may not be as stringent as those applicable to traditional financial services actors, such as banks and non-bank financial companies (NBFCs). While FinTechs have made rapid strides in India in the digital payment and lending space, the same is not true for cryptocurrencies, where there has been considerable regulatory resistance. Depending on the nature of the services, investment advisors and mutual fund and asset management companies in India are required to comply with SEBI securities regulations for investment advisors (the AI Regulations) and mutual funds (the MF Regulations), as amended from time to time, and which apply from consistent with traditional and automated service models. .