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Reserve Bank of India Wants ‘Hands-Off’ Approach to FinTech Regulation

Reserve Bank of India

The Reserve Bank of India (RBI) reportedly wants to take a “hands-off” approach to regulating FinTechs.

At the same time, the central bank expects these firms to follow rules on customer verification and data protection, RBI Executive Director P. Vasudevan said Friday (Feb. 16), Bloomberg reported Friday.

There are “no harsher measures coming on FinTech,” Vasudevan said, according to the report. Vasudevan is in charge of enforcement at RBI, per the report.

Other RBI officials have also said that the regulator wants the FinTech industry to thrive, according to the report.

This news comes after reports of actions taken by the RBI in recent weeks.

On Wednesday (Feb. 14), it was reported that Visa and Mastercard have paused intermediated commercial card payments in India after the RBI directed them to do so.

“Visa received a communication from the RBI on February 8, in what appears to be an industry-wide request for information on the role of business payment solution providers (BPSPs) in commercial and business payments,” a Visa spokesperson told Reuters.

The Economic Times (ET) reported that the RBI’s move may have been driven by the regulator’s effort to halt a flow of money to merchants that have not been subjected to know your customer (KYC) processes. The bank accounts of these merchants may have been subjected to KYC processes, but the merchants themselves are not authorized to accept card payments as merchants, the ET report said.

In another move, the RBI issued an order Jan. 31 telling Paytm Payments Bank to stop conducting business. The banking regulator said an audit uncovered compliance issues connected to the bank, which processes transactions for the Indian FinTech Paytm.

The RBI had in 2022 ordered the bank to stop accepting new customers pending an audit. In a statement issued Jan. 31, the regulator said the audit “revealed persistent noncompliances and continued material supervisory concerns in the bank, warranting further supervisory action.”

On Feb. 4, it was reported that the RBI had found thousands of Paytm Payments Bank accounts created without proper identification and turned this information over to the country’s financial crime-fighting agency.

A spokesperson for Paytm Payments Bank told Reuters at the time that neither it nor Paytm have ever been investigated by the Enforcement Directorate.