Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said the central bank will soon issue guidelines and measures to make the digital lending ecosystem safe while enhancing customer protection and encouraging innovation. He added that the increasing use of technology and digital services has led to more incidents of digital frauds and customer dissatisfaction.
He also said the recommendations of the RBI Working Group on digital lending are under examination for the issuance of the guidelines. “We have recently set up a Committee for Review of Customer Service Standards in the RBI Regulated Entities (REs) which would, inter alia, review the emerging and evolving needs of the customer service landscape, especially in the context of evolving digital financial products and their distribution, and suggest measures for strengthening the overall consumer protection framework.”
He said the need for financial technology regulation emanates from the challenges they pose to the financial system and the new risks they carry. These risks have a bearing on overall financial stability and market integrity.
He was speaking at an event on ‘Disruptions & Opportunities in the Financial Sector’ organised by the Financial Express.
On the new-age technologies, he said, “When it comes to technology, it may transcend regulatory or national boundaries. The most relevant example in this case would be the blockchain technology. Different blockchain platforms cannot be limited to a regulator or a nation.”
He said another example can be the case of De-centralised Finance (DeFi) in which financial applications are processed on a blockchain with limited or no involvement of centralised intermediaries. DeFi poses unique challenges to regulators as its anonymity, lack of a centralised governance body, and legal uncertainties can make the traditional approach to regulation ineffective. There is, therefore, a case for a globally coordinated regulatory approach and inter-regulatory co-ordination to enable comprehensive assessment of such activities and mitigation of their risks.
Das said the RBI’s regulatory approach has been realigned to support and foster innovations. The regulatory guidelines for account aggregators and peer-to-peer lending operators are indicative of a proactive regulatory approach.
“An enabling framework for Regulatory Sandbox has been in place for the past three years. The Reserve Bank Innovation Hub (RBIH) has also been set up by the RBI to catalyse innovations in the Fintech sector. We are now moving towards the introduction of a central bank digital currency (CBDC),” the RBI governor said.
On the loan recovery methods, he said another area that is engaging the attention of the RBI is the harsh recovery methods used by certain lenders, without having adequate checks and controls over their recovery agents.
“We have received complaints of customers being contacted by recovery agents at odd hours, even past midnight. There are also complaints of recovery agents using foul language. Such kind of actions by recovery agents are unacceptable and pose reputational risk for the financial entities themselves,” Das added.
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