India’s First Fintech Watchdog to Ramp Up Enforcement and Protect Consumers

India’s first official self-regulatory organization (SRO) for fintech companies is gearing up to tighten its oversight and crack down on any wrongdoing. The Fintech Association for Consumer Empowerment (FACE), which was recently recognized by the Reserve Bank of India (RBI), plans to create an enforcement committee to investigate misconduct. FACE also aims to expand its membership and sign agreements with its members to ensure they follow the rules.

1. SRO Role: Sugandh Saxena, CEO of FACE, says being recognized by the RBI is a huge responsibility. The SRO will have to manage the fast-growing and diverse fintech sector. If members repeatedly break the rules, they could lose their membership.
   
2. Growth of Fintech: The fintech industry in India has grown rapidly, raising concerns about customer protection and data privacy. Over the past decade, more than $31 billion has been invested in the fintech space. With around 11,000 fintech companies in India, the RBI wants SROs like FACE to act as a bridge between the regulator and the industry, ensuring compliance and pointing out any violations.
   
3. Regulatory Challenges: Recently, the RBI has taken steps to regulate the industry, including imposing fines on two peer-to-peer (P2P) lending platforms for not following the rules. Despite the huge opportunity in digital lending, regulatory hurdles have slowed down growth.
   
4. FACE’s Plan: FACE has already started expanding its membership to include a wider range of fintech companies, not just those involved in credit. The SRO also plans to involve smaller and newer fintechs in its activities. It aims to build strong governance mechanisms that ensure fairness and inclusivity, with different types of fintechs represented on its board and committees.
   
5. Technology and Talent: FACE plans to invest in technology and talent to handle its new responsibilities, particularly in areas like cybersecurity, AI, and data privacy. The SRO will also oversee unregulated fintechs that work with regulated entities, ensuring the entire ecosystem is secure and compliant.
   
6. RBI’s Push for SROs: The RBI has been encouraging the formation of SROs in the fintech sector to help with oversight and governance. At the Global Fintech Fest, RBI Deputy Governor T. Rabi Sankar emphasized the importance of SROs fostering competition and innovation while also considering social and economic priorities.
   
7. Customer Protection Focus: The RBI’s decision to recognize FACE aligns with its focus on consumer protection. FACE applies a “customer and user interest” approach to ensure that customers have safe and suitable digital experiences.