RBI increases monitoring of Fintech Companies

The Reserve Bank of India (RBI) is increasing its oversight of fintech companies to ensure they follow regulations and protect customers.

Increased Scrutiny

• Analysts’ Review: RBI is employing analysts to carefully examine customer data of fintech companies.
• Regular Meetings: It’s also holding regular meetings with fintech executives to discuss compliance issues.

Reason for Action

• Previous Inspections: Routine inspections revealed that many fintech firms weren’t adequately following customer due diligence.

Concerns with Digital Customer Identification

• Dependence on Aadhaar and Mobile Numbers: Fintech firms use Aadhaar and linked mobile numbers for customer verification.
• Advantages and Risks: While this method is fast and cost-effective, it’s vulnerable to manipulation, posing risks of fraud and money laundering.
• RBI’s Stance: RBI doesn’t ban this method but considers digitally verified accounts as ‘high risk’ until physical or video-call identification is done.

Strengthening Supervision

• Sampling during Inspections: RBI officials randomly select samples from fintech user bases during onsite inspections to verify authenticity.
• Increased Meetings: RBI plans to hold more frequent meetings with fintechs.
• Technological Investments: RBI is investing in advanced technology to detect regulatory breaches.
• Data Examination: Analysts are tasked with scrutinizing personal data of millions of customers held by fintech firms.

Conclusion

By ramping up scrutiny and engagement with fintech companies, RBI aims to ensure compliance with regulations and safeguard customer interests in the rapidly evolving financial technology sector.