RBI to set up repository to support fintech companies

In a crucial step to promote best practices in the thriving fintech sector, the Reserve Bank of India (RBI) has proposed to set up a repository for capturing essential information about the companies operating in this domain. This will have data on their activities, products, technology stack, and financial information. The decision was shared by RBI governor Shaktikanta Das while he announced monetary policy committee (MPC) decisions on developmental and regulatory policies today.

"For better understanding of the developments in the FinTech ecosystem with an objective to appropriately support the sector, it is proposed to set-up a Repository for capturing essential information about FinTechs, encompassing their activities, products, technology stack, financial information etc," the RBI statement says.

However, the RBI has said fintechs will be encouraged to provide relevant information voluntarily to the repository, which will help in designing appropriate policy approaches. This repository will be operationalised by the Reserve Bank Innovation Hub in April 2024 or earlier. Necessary guidelines for this will be issued separately.

"To ensure a resilient FinTech sector and promote best practices, regulators and stakeholders need to have relevant and timely information on FinTech entities, including the nature of their activities. Today, FinTechs are using emerging technologies like Distributed Ledger Technology (DLT), Artificial Intelligence / Machine Learning (AI / ML), and so on," the statement adds.

Apart from this, the RBI's MPC also decided to establish a cloud facility for the financial sector in India. The proposed facility is aimed at enhancing the security, integrity and privacy of financial sector data. It is also expected to facilitate scalability and business continuity.

Banks and financial entities are maintaining an ever-increasing volume of data, and many are using various public and private cloud facilities. The RBI now wants them to use the government cloud facility. "The cloud facility will be set up and initially operated by Indian Financial Technology & Allied Services (IFTAS), a wholly-owned subsidiary of RBI. Eventually, the cloud facility will be transferred to a separate entity owned by the financial sector participants. This cloud facility is intended to be rolled out in a calibrated fashion in the medium term," says the RBI statement.

In addition to this, the RBI also decided to conduct a review of the "regulatory framework for hedging of foreign exchange risks", saying the framework has been refined to enhance operational efficiency and ease access to foreign exchange derivatives, especially for users with small exposures. It will also ensure that a broader set of customers, with the necessary risk management expertise, are given the flexibility to manage exposures efficiently. The central bank will issue master directions separately.

Notably, the regulatory framework governing the hedging of foreign exchange risks was reviewed in 2020 to devise a principle-based regime. After several feedbacks, it has been made more comprehensive and include directions in respect of all types of transactions -- over-the-counter (OTC) and exchange traded -- under a single master direction.